Over the past week, the Biden Administration and Senate Democrats have released proposals to change how the U.S. taxes multinational companies.
American Jobs Plan and Made in America Tax Plan
President Biden unveiled a broad outline of a $2 trillion jobs proposal focused on infrastructure and climate initiatives. Funding for the plan would be achieved in part through tax changes aimed at corporations.
The “American Jobs Plan” would heavily invest in rebuilding infrastructure and shift to greener energy over the next eight years. Further details of the American Jobs Plan are available in the White House Fact Sheet.
Along with the American Jobs Plan, the Biden Administration laid out the “Made in America Tax Plan” which proposes changes that will raise over $2 trillion over the next 15 years.
Key tax proposals of the Made in America Tax Plan as listed in the White House Fact Sheet:
- Increase the corporate tax rate from 21% to 28%
- Create a new corporate minimum tax of 15% on “book income” of large corporations
- Increase IRS corporate enforcement budget
- Increase the tax rate on global intangible low-taxed income (“GILTI”) from 10.5% to 21%, eliminate the 10% return on tangible assets (QBAI) and institute a country-by-country calculation
- Elimination of the foreign derived intangible income (“FDII”) deduction
- Tightening anti-inversion rules making it harder for U.S. corporations to invert
- Disallow certain expense deductions for companies offshoring jobs and provides credits to support onshoring jobs
- Enact a new rule disallowing profit-stripping deductions for payments made to foreign corporation if the foreign corporation is “based in a country that does not adopt a strong minimum tax”. This proposal may signal a possible repeal of the base erosion and anti-abuse tax (“BEAT”) as the fact sheet states that this proposal will replace “an ineffective provision in the 2017 tax law that tried to stop foreign corporations from stripping profits out of the United States”
- Eliminates tax preferences for fossil fuels
The plan also indicates that additional proposals relating to individual taxation will be forthcoming.
Senate Democrats Framework – Overhauling International Taxation
The framework comes from Finance Committee Chairman Ron Wyden (D., Ore.) and members of the committee Senators Sherrod Brown (D., Ohio) and Mark Warner (D., Va.) and proposes revisions to the Tax Cuts and Jobs Act of 2017, including:
- GILTI: increase the GILTI tax rate (no specific rate increase mentioned), country-by-country calculations, eliminating the 10% QBAI return, adding an incentive to onshore research and management jobs by reducing the burden placed by these expenses on the foreign tax credit system
- FDII: eliminating the 10% QBAI hurdle in the FDII calculation, incentivizing companies that incur expenses for innovation-spurring activities occurring in the U.S. and equalizing the FDII and GILTI rates
- BEAT: increase the rate (no specific rate increase mentioned) on base erosion payments, capture more revenue from companies eroding the U.S. tax base and restoring full value of tax credits that support investment and opportunity in the U.S. under the BEAT calculation
We anticipate that additional details on the proposed tax changes will be included in the President’s FY 2022 budget plan and any debates to follow. Companies should begin evaluating the “American Jobs Plan”, “Made in America Tax Plan” and the Senate Democrats Framework and consider modeling the potential tax impact of these proposals.