How the tax bill could hit two American companies, one domestic, the other global

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Advance Auto primarily sells auto parts through its stores based in the United States. Agilent manufactures and sells laboratory equipment and chemicals primarily overseas. You make your profits at home; the other delivers most of its profits abroad.

The Democratic plan, adopted by the House Ways and Means Committee last month, would raise nearly $ 1 trillion over a decade through increased corporate taxes. It does so in part by increasing the corporate tax rate to 26.5% from 21% and increasing taxes on foreign income, without reinstating many of the tax breaks Congress limited in 2017.

Democrats argue that the 2017 tax cuts by Congressional Republicans were too big and want to raise money to fund initiatives in health, education and climate change.

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For Advance Auto Parts, the latest Democratic proposal would mean giving up nearly half of the annual reduction in its declared tax rate that followed the rewrite of the GOP’s tax law four years ago, according to an analysis for the Wall. Street Journal by Accounting and Tax Research. Zion Research Group company. For Agilent, that would mark another gradual tax increase, but still leave it paying a lower rate than Advance Auto.

As part of the plan, Advance Auto could see its tax rate rise to just over 29%, up from around 24% in 2020, including national and local taxes, according to the analysis. The national retailer’s tax rate was nearly 38% before the 2017 tax review, Zion Research found.

The plan would push Agilent’s tax rate to around 20%, down from just under 17% last year, according to Zion Research. The multinational biotech supplier’s tax rate was on average around 14% over three years before the 2017 tax review, according to Zion Research’s estimate.

Advance Auto declined to comment and Agilent declined to discuss the potential impact of the proposed legislation. For both companies, the estimated effect of the proposal reflects their tax rates determined from public financial information, which may differ significantly from the company’s accounting for tax reporting and payment purposes, and adjusted for certain one-off events and accounting effects. Companies generally do not disclose their exact tax payments for each year to each jurisdiction.

Indeed, the Democratic proposals would increase the money of domestic companies like Advance Auto thanks to the higher statutory tax rate. This would increase the money of US-based multinationals like Agilent with higher minimum taxes on foreign income.

Multinational companies are particularly affected by Democratic plans, said Joshua Bolten, chief executive of the Business Roundtable, a group of CEOs of large companies. “There are variations among our members in how they react to different changes, with international changes in fact in many cases being more of a concern than national changes,” Bolten said.

Mr Bolten told reporters last month that the group’s competitiveness arguments – that a US headquarters are at a disadvantage to overseas-based companies – are starting to resonate among Democrats. Party lawmakers are still negotiating what they want to do, and any gap between US-based and foreign companies could narrow if a US-backed international deal raises minimum taxes elsewhere.

The Democrats’ plan to fund President Biden’s $ 3.5 trillion Build Back Better initiative will need to strike the right balance to appeal to the progressives without alienating the moderates. WSJ’s Gerald F. Seib chats with tax policy reporter Richard Rubin. Photographic illustration: Todd Johnson

Advance Auto and Agilent are just two companies and illustrate the extremes of exposure to domestic and foreign tax rates in the United States. Zion Research selected the companies for the analysis. He examined the impact of proposed changes to the corporate tax rate and some international provisions in the Democratic proposals, ignoring all the provisions under consideration.

“It will be business by business, and it will be the nature of your business to decide what is important,” said Eric Solomon, partner at the law firm Steptoe & Johnson LLP who was assistant secretary of the treasury for tax policy. under the chairman of the GOP. George W. Bush from 2006 to 2009.

For Advance Auto, almost all of its estimated increase stems from proposals to increase the federal tax rate on income generated in the United States.

A retail lobby group said the proposal to raise domestic tariffs would disproportionately harm domestic retailers. Instead, lawmakers should look at companies that don’t currently pay a lot of tax and consider ideas like an alternative minimum tax for businesses, said Hana Greenberg, vice president of taxation at the Retail Industry Leaders Association. .

“We’re going to stress to Democrats that they should focus on tax fairness,” said Ms. Greenberg, former assistant to Rep. Ron Kind (D., Wisconsin). Advance Auto is a member of the group, but Ms. Greenberg was talking about the industry in general.

The most important factor in Agilent’s potential tax increase is the proposed expansion of the US minimum tax on foreign profits, while applying the minimum tax on a country-by-country basis. Currently, companies can mix profits from certain high tax countries with profits from low tax countries before applying minimum tax.

Agilent has manufacturing facilities around the world, has acquired businesses in other countries, and its equipment is used extensively outside of the United States, the company said.

One factor that is currently lowering Agilent’s overseas tax rate: “tax exemptions” in several countries, including Singapore, which the company recently negotiated to extend until 2027. Together, these tax exemptions have reduced the company’s tax burden by approximately $ 526 million in the past. three years, of which around $ 300 million reflects expected future savings in Singapore but does not take into account the future effect of the US global minimum tax.

Advance Auto and Agilent would fare better under the House’s proposal than the one presented earlier this year by the Biden administration, Zion Research has found. Agilent, in particular, would see its tax rate increase further under the terms of this proposal increasing taxes on foreign profits.

Write to Theo Francis at [email protected] and Richard Rubin at [email protected]

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