Green Book, Part I: Key US Corporate Tax Proposals

Category: Corporate Tax

Aug 18, 2021

In May 2021, the White House released its proposals for the 2022 US federal budget, which included several tax proposals. The economic ideas of the Biden administration have held that the previously enacted Tax Cuts and Jobs Act disproportionately benefited large corporations and wealthy individuals, and provisions under the American Jobs Plan are geared towards rolling back certain key changes to the corporate tax code put into law in 2017.

While the proposals summarized in the table below have yet to be drafted into legislation, and will almost certainly differ in their final form from what has been initially proposed, it is likely that they represent the direction changes to tax law will take in the near future.

Proposals affecting corporations are:

	*Current*	*Proposed*	*Proposed Effective Date*	*Notes*
Corporate income tax rate	21{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} (flat)	28{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} (flat)	Tax years starting after December 31, 2021; for tax years starting after January 1, 2021 but before December 31, 2021 this would be subject to a prorated increase.	Not all Democrats support a 28{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} rate. A more modest rate of 25{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} has been proposed.
Global Intangible Low-Taxed Income (GILTI)	50{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} deduction reduces tax rate to half of the corporate rate (10.5{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f}) before foreign tax credits; and where applicable, a high tax exception can be elected	QBAI exception is eliminated; GILTI deduction is reduced to 25{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} from 50{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f}; high tax exception is eliminated; GILTI would be computed on a country-by-country basis rather than aggregating all foreign income; retains limits on how much of a GILTI FTC may be claimed (80{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f})	Tax years starting after December 31, 2021	No impact to the GILTI FTC “haircut” (80{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} of a GILTI FTC).
Foreign Derived Intangible Income (FDII) deduction	Deduction against certain US-sourced income from the export of goods and services from US companies. On qualified profits, effective tax rates can be as low as 13.125{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f}.	Repeal of FDII deduction; Other research and development tax incentives contemplated	Tax years starting after December 31, 2021
Limits on profit shifting	Base Erosion and Anti-Abuse Tax (BEAT): an alternative tax of 10{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} applied to a US taxpayer’s income after certain base eroding payments are added back. Taxpayers pay either regular tax or BEAT, whichever is greater. Affects expanded groups with three-year average of U.S gross receipts over $500M. Base eroding payments must be at least 3{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} of all below-the-line deductions.	Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD): Denies deductions rather than applying a minimum tax. $500 million gross receipts test applied on an annual basis to the global revenue of a financial reporting group. Deductions may be denied in part or in full depending on: •Denied in full when made to a party paying an effective tax rate under the Pillar 2 rate (or GILTI rate of 21{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f}) •Possible denial of the portion of cost of goods sold related to cross-border, intercompany purchases, or capitalized expenses •Partial denial of deductions when a financial reporting group includes any low-tax entities	Tax years starting after December 31, 2022	The SHIELD proposal introduces new concepts, including “financial reporting groups” and references to financial statement reporting, potentially difficult to implement and likely to require further guidance. A portion of a taxpayer’s deduction for cost of goods sold may also be at risk under the new proposal.
Subpart F	Current tax on passive income earned by controlled foreign corporations (CFCs)	High-tax exception repealed	Tax years starting after December 31, 2021	Synchronizes with the repeal of the GILTI high-tax exception.
Anti-inversion rules	A foreign corporation that acquires a US corporation may be treated as a US corporation permanently if the original investors in the US corporation have an interest of 80{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} or higher in the acquiring foreign corporation	80{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} threshold lowered to 50{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f}; a reverse acquisition may be classified as an inversion if the expanded group is generally managed in the US and has no substantial business in the foreign country of residence; acquiring assets making up an entire trade or business from a US entity may now be subject to inversion rules	Transactions occurring after date of enactment	Continued trend of increasingly tougher anti-inversion laws.
Minimum book tax	Not currently applicable	Minimum tax of 15{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} on companies earning a net income of $2 billion or greater; credit may be given for excess tax paid in prior years, similar to the old AMT; credit may also be given for both general business credits and foreign tax credits, but not deductions	Tax years starting after December 31, 2021
Disproportionate interest deduction	Interest deductions are currently limited, including a provision under section 163(j) holding that the net interest deducted by a taxpayer cannot exceed 30{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} of their adjusted taxable income	Affects US members of multinational groups when they report $5 million or more of net interest expense annually; disallows net interest deductions for U.S. members to the extent they exceed the member’s proportionate share of the group’s net interest expense of the member to the EBITDA of the group); alternative to limit a member’s interest deduction to member’s interest income plus 10{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} of their adjusted taxable income; disallowed interest is carried forward; applies concurrently with section 163(j), with taxpayers only able to claim the lower amount of the two	Tax years starting after December 31, 2021
Onshoring credit and offshoring deduction limitation	Not currently applicable	Business credit equal to 10{d61ad4666dda706b731686a225909392f074403d16c1288901cab8f2cf34ab1f} of eligible expenses paid or incurred in onshoring a US trade or business; no deduction allowed to a US shareholder of a CFC in GITLI or Subpart F inclusion for expenses incurred in moving a US trade or business outside of the US	Expenses incurred or paid after date of enactment

While the general idea of incentivizing corporations to onshore business to the US and eliminate tax loopholes is popular, there is no monolithic agreement, even among the majority in Congress. The above proposals are expected to increase the overall tax burden on corporate taxpayers and incorporate substantial modifications to the international tax regime that was overhauled in 2017 by the Tax Cuts and Jobs Act. As such, businesses should seek professional tax advice to determine the potential impact of these provisions on their global tax liability.

For more information, please contact your US tax advisory team at youradvisor@fernwaysolutions.com or visit us at www.fernwaysolutions.com.

Disclaimer:
The above content is intended to support the marketing of professional services and should not be construed as written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular tax situation. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Fernway Solutions assumes no obligation to inform the reader of any such changes.

Fernway DiarySM

Green Book, Part I: Key US Corporate Tax Proposals

Sign up for updates!

Recent Posts

Categories

Walk

With US.