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October 29, 2021

Report on recent US international tax developments 29 October 2021

United States (US) President Joe Biden on 28 October announced a new budget reconciliation framework that outlines the Democrats' US$1.75 trillion1 package, which was followed hours later by the legislative text. The rewrite of the Build Back Better Act (H.R. 5376) – which originally was proposed at $3.5 trillion – is essentially a stripped-down version of the House bill from September with new revenue offsets reflecting Senator Kyrsten Sinema’s opposition to tax rate increases.

A White House press release states that the package is "fully paid for and will reduce the deficit" through various tax provisions, including a 15% corporate alternative minimum tax on corporate profits and a 15% global minimum tax. The framework also includes a surcharge on high income individuals, estates and trusts (5% on modified adjusted gross income above $10 million and an additional 3% tax on modified adjusted gross income above $25 million) and an overhaul of tax administration.

The revamped budget reconciliation bill does not include a number of social spending programs, such as paid family and medical leave due to opposition from centrist Democrats. It also does not include free community college, a program aimed at pushing utilities to generate more clean energy, nor a series of top marginal corporate or individual tax rate increases. The package also left out a recently proposed tax on billionaires' unrealized gains, due to concerns raised by Senator Joe Manchin and other Democrats.

The tax items in the coming budget reconciliation bill are not completely settled. Senate Finance Committee Chairman Ron Wyden said: “This is not done,” adding that the Administration “acknowledged that there is more work to do.”

International tax changes remain in the package and the global intangible low-taxed income (GILTI) rate would increase to 15% with a country-by-country application of the GILTI regime. The revised bill reduces the Internal Revenue CodeSection 250 deduction for foreign-derived intangible income (FDII) to 24.8% and GILTI to 28.5%, yielding a 15% GILTI rate and a 15.8% FDII rate, with changes effective for taxable years beginning after 31 December 2022. The bill would permit the carryforward of excess foreign tax credits with respect to the GILTI category to five succeeding taxable years for taxes paid or accrued in taxable years beginning after 31 December 2022 and before 1 January 2031. For taxable years beginning after 31 December 2030, the carryforward period for excess GILTI category taxes would be 10 years.

The new Biden framework calls for “imposing a penalty rate on any foreign corporations based in countries that do not” abide by the OECDagreement, and in the House bill the Base Erosion and Anti-Abuse Tax (BEAT) rate has been increased to 12.5% in 2023, 15% in 2024, and 18% in 2025 and later. The tax press is quoting a House Democratic staffer as saying that the Biden Administration’s “Stopping Harmful Inversions and Ending low-tax Developments” (SHIELD) proposal has been dropped, with changes to BEAT proposed instead.

The revised bill retains the proposal to add Section 163(n) to limit the interest deduction of certain domestic corporations that are members in an international financial reporting group to the “allowable percentage” of 110% of the net interest expense. The revised bill, however, removes the five-year carryforward limitation for interest expense disallowed under Sections 163(j) or (n) that was originally proposed under Section 163(o)(2). New regulatory authority was also granted to address certain items of income and expense under subpart F, taxpayers with interests in fiscally transparent entities, and potential adjustments to interest income and expense. The revised proposal applies to taxable years beginning after 31 December 2022.

In terms of a timeline, there appears to be growing consensus among Democrats to work to get both the reconciliation bill and infrastructure done in short order. Senate Majority Leader Chuck Schumer reportedly told Democratic members they have about a week to negotiate things back in or out of the reconciliation framework released on 28 October. Senator Sinema released an optimistic statement about the framework and Senator Manchin indicated he would support a $1.75 trillion package, but refused to say he if he supports the latest budget framework.


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

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC



  1. Currency references in this Alert are to the US$.
  2. All “Section” references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.
  3. Organisation for Economic Co-operation and Development.

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