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April 6, 2021
US: Senators Wyden, Brown, Warner release International Tax Framework
United States (US) Senate Finance Committee Chairman Ron Wyden and Senators Sherrod Brown and Mark Warner on 5 April released “Overhauling International Taxation: A framework to invest in the American people by ensuring multinational corporations pay their fair share,” which focuses on changes to the 2017 Tax Cuts and Job’s Act (TCJA) international provisions on global intangible low-taxed income (GILTI), foreign-derived intangible income (FDII), and the base erosion and anti-abuse tax (BEAT).
The framework aims to “reboot the international tax system” to better “focus on rewarding companies that invest in the U.S. and its workers, stop incentivizing corporations to shift jobs and investment abroad, and ensure that big corporations are paying their fair share.” The nine-page document leaves several policy options undetermined, does not include legislative language, and in some ways suggests alternative approaches to the Made in America Tax Plan’s international changes proposed by President Biden on 31 March, which also leave many details unspecified.
Proposed GILTI changes under the framework would:
A new “incentive to onshore research and management jobs” called for under the framework would provide relief from US expense allocation rules that currently impact the GILTI foreign tax credits – “expenses for research and management that actually occur in the U.S. should be treated as entirely domestic expenses, eliminating foreign tax credit penalties under GILTI and helping retain these activities in the U.S.”
FDII changes would “repair” the current rules by:
BEAT changes call for more effectively penalizing base erosion through a second rate bracket such that “regular taxable income would still be subject to a 10% rate, while base erosion payments would be subject to a higher rate.” The value of domestic tax credits that currently increase BEAT exposure would be restored and a similar proposal for the loss of value in foreign tax credits could be addressed with an increased BEAT rate.
In contrast, the Biden Administration has called for repealing the BEAT and replacing it with a new anti-base erosion regime more akin to the undertaxed payment rule being developed by the Organisation for Economic Co-operation and Development as a backstop to its global minimum tax regime.
For additional information with respect to this Alert, please contact the following:
Washington Council Ernst & Young, Washington, DC