Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

March 26, 2021

US Senate Finance holds International Tax Hearing

The United States (US) Senate Finance Committee’s March 25 international tax hearing largely focused on a brewing battle between the Biden Administration and some congressional Democrats on the one hand and Republicans and much of the business community on the other over dramatically changing the international tax provisions in the Tax Cuts and Jobs Act (TCJA), including raising revenue by changing the global intangible low-taxed income (GILTI) provisions, the base erosion and anti-abuse tax (BEAT), and the foreign derived intangible income (FDII) rules. Democratic witnesses made the case for international tax changes to fund priorities like infrastructure and other proposals in the President’s Build Back Better plan and contended that the TCJA created incentives for US companies to move tangible assets and jobs outside the United States. Other witnesses and Republican committee members suggested there’s no need to change the provisions. Pam Olson, Former Assistant Secretary for Tax Policy, said she is unaware of any company that has moved operations to take advantage of GILTI. There was also a lot of discussion over whether increasing US taxes would reignite interest in inversions.

In an opening statement, Chairman Ron Wyden called the Joint Committee on Taxation (JCT) 19 March report “jaw-dropping” for finding that the TCJA reduced the average US tax rate paid by the largest US corporations by more than half. Chairman Wyden said he will in coming days, joined by Senators Sherrod Brown and Mark Warner, release a framework for international taxation that reverses TCJA provisions for US-based multinationals who “must pay a fair share,” rewards companies that invest and create good-paying jobs in the US, and stops rewarding companies that ship jobs and factories overseas.

Ranking Member Mike Crapo warned against changing the system purely for purposes of bringing in revenue, which he said could incentivize inversions, and noted that international tax changes were sought on a bipartisan basis prior to the TCJA.

The hearing highlighted a fundamental disagreement over US international tax policy, as Chairman Wyden made clear in his closing remarks: he noted that he has always supported tax reform that would tax the foreign earnings of US companies at the full US rate, while the TCJA represents an effort to move to a more territorial system in which the US largely does not tax the active foreign earnings of US global companies. The hearing also focused on whether FDII is indeed an effective export incentive, and whether the BEAT is doing enough to prevent erosion of the US tax base.

Testimony in brief:

  • Kimberly Clausing, Ph.D., Treasury Deputy Assistant Secretary (Tax Analysis), said post-TCJA, “the use of tax havens to avoid tax continues unabated” and a “stronger minimum tax, stronger measures to tackle the profit shifting of foreign multinational companies, and close cooperation with our allies all have an important role to play.” She said while under the GILTI minimum tax, the first 10% return on tangible assets is free of US tax and subsequent income is taxed with a 50% deduction, “our tax system would benefit from a much stronger minimum tax.” Under questioning, she added that the BEAT should be revisited and that the Administration is studying what changes should be made, noting JCT estimates that the BEAT is not raising near the revenue originally estimated and that it creates a disincentive to invest in clean energy projects because of the interaction between the BEAT and tax credits.

  • Olson warned against proposals to eliminate the exception from GILTI of a 10% return on tangible assets a company uses in its foreign operations, which serves as a rough proxy for intangible income, saying the exception “allows US companies to compete on a level playing field with foreign companies with respect to investments in tangible assets that yield normal rates of return, by subjecting them to only the foreign tax rate in the country in which the tangible assets are located.”

  • Chye-Ching Huang, New York University School of Law, said the 10% exception is an incentive for firms to shift or locate plants, equipment, and other physical assets offshore, because the more such assets a corporation has overseas, the more of that firm’s offshore income will face a nil US tax rate rather than the domestic corporate tax rate of 21%; the aggregate versus jurisdictional nature of the calculation creates incentives for US MNCs to book profits elsewhere; and there is “room for tax-motivated profit and investment shifting in the space between 10.5% (or sometimes nil) and 21%, and the only way to curb much of that tax avoidance activity is to narrow the tax rate gap.”

  •  James R. Hines Jr., Ph.D., University of Michigan, said part of the motivation for international tax reform is concern over international tax avoidance, and, “It has long been clear that many of the estimates of income shifting by multinational firms greatly overstate the extent of the problem.”

Testimony and statements from the hearing are at:


For additional information with respect to this Alert, please contact the following:

Washington Council Ernst & Young, Washington, DC

  • Any member of the group, at +1 202 293 7474


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more