Changes to the US tax plan, with minimum corporate tax, rate hikes – MNE Tax

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By Doug Connolly, Multinational Corporate Taxation

Update October 28, 2021: Framework released. Confirms 15% minimum corporate tax and 15% global minimum tax country by country. The billionaire tax is removed, but adds a surtax on individuals with income over $ 10 million.

Democrats appear poised to pass a 15% minimum corporate tax on the book income of the most profitable businesses for their budget bill, with an updated proposal for such a tax released on October 26 by the Senators Elizabeth Warren (D-Mass.), Angus King (I-Maine) and Ron Wyden (D-Ore.).

Negotiations continue today on the final package of the bill, with the fate of several tax provisions and major spending still uncertain.

The book tax proposal has already been launched, but has gained new momentum because of objections from Sen. Kyrsten Sinema (D-Arizona) to any increase in the corporate tax rate. Biden and Democratic lawmakers can’t afford to lose a single voice in the Senate if they are to squeak their “Build Back Better” budget bill. As a result, as a payment for their social policy agenda, they have limited options other than swapping a simple corporate rate hike for an ambitious but relatively untested policy idea.

The alternative corporate minimum tax is similar to the global minimum tax agreed during the OECD Inclusive Framework negotiations earlier this month, but different from it. Both set a minimum rate of 15% and would apply in one form or another to income determined under the principles of financial accounting.

However, while the global minimum tax would allow countries to impose “top-up” taxes to prevent companies from shifting their profits to tax havens, the corporate minimum tax would prevent companies from using corporate credits. tax, deductions or “loopholes” to report no taxable income while reporting substantial profits to shareholders.

Minimum corporate tax

The updated corporate minimum tax proposal would not entirely eliminate the ability of corporations to take advantage of available tax benefits. It would retain various business credits, including research and development (R&D), clean energy, housing, and foreign taxes paid. It would also allow companies to carry forward losses to offset the obligation to pay minimum tax in future years.

As a result, the proposal would give affected companies more flexibility with minimum accounting income tax than they would have had under a similar proposal released by Senator Warren in August. The scope of the tax has also been reduced. Warren’s original plan would have applied to companies reporting more than $ 100 million in accounting revenue, impacting approximately 1,300 public companies.

The new accounting income tax proposal is limited to very large companies – those that report more than $ 1 billion in profits. This only represents about 200 companies.

Biden had proposed a minimum tax on book income in his Green Paper tax plan released in May. His proposal would have applied a 15% tax on global accounting income for companies with global accounting income exceeding $ 2 billion.

Biden tried unsuccessfully to get moderate Republicans to sign the idea of ​​a minimum business tax for a bipartisan bill this summer. Leading tax drafters in the Democratic Congress also refused to endorse the idea, initially, in the August Senate bill and September House bill. Yet he lives.

Billionaires’ tax

The corporate minimum tax proposal comes along with a new parallel tax proposal aimed at the wealthiest people. If passed, the “billionaire income tax” could serve as an alternative to personal tax rate increases for high earners.

Proposed by Senate Finance Committee Chairman Wyden on October 27, the measure would tax the wealth of the ultra-rich through annual mark-to-market taxation of tradable assets and other provisions. It would only apply to individuals who have more than $ 1 billion in assets or $ 100 million in annual income for three consecutive years. This would limit its application to around 700 people.

Passing the billionaires’ tax proposal seems less likely than the minimum corporate tax. Senator Joe Manchin (DW.Va.) ‘s initial comments on it – another essential moderate vote – were critical, suggesting it is too complicated and too narrowly focused.

Global minimum tax

None of the new proposals address the status of plans to adjust global low-tax intangible income (GILTI) provisions to align with the October 8 OECD agreement. In general, the GILTI rate should be increased to at least 15% and the calculation moved to a country-by-country basis.

Biden had initially sought to increase the rate of GILTI to 21%. However, last month’s House bill proposed a more modest increase, and it was reported that Democrats could settle for less – that is, the bare minimum to align with the deal. of the OECD. However, the adoption of an even more modest modification of GILTI to align with the OECD agreement remains uncertain.

Nonetheless, having succeeded in reaching an international agreement on a comprehensive minimum tax on such a large scale, it seems unlikely that the Biden administration easily blurted out the final package provision for the US bill. The global minimum tax gained approval from 136 countries earlier this month after the Biden administration pushed for it since the spring.

A clearer picture of the upcoming international tax landscape should soon emerge. Democrats aim to settle this week – ideally, and perhaps even today – the final framework of a budget deal between Biden and the progressive and moderate wings of the party.

Doug Connolly is editor-in-chief of MNE Tax. He has over 10 years of experience in tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from the American University Washington College of Law.

Doug Connolly
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Doug Connolly


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