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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:
Testimony and statements from the hearing are at: https://www.finance.senate.gov/hearings/how-us-international-tax-policy-impacts-american-workers-jobs-and-investment.
For additional information with respect to this Alert, please contact the following:
Washington Council Ernst & Young, Washington, DC