Administration’s Plan to Capture More Corporate Revenue
By: Juliya L. Ismailov and Inhyuk Yoo
Under the Made in America tax plan issued by the U.S. Department of the Treasury (“Treasury report”) on April 7, 2021, the current administration seeks to capture tax revenue from domestic and foreign corporations with U.S. source income. Below is a summary list of the tax proposals:
Increasing corporate income tax rate to 28% from 21%, and enacting a 15% minimum tax on corporation’s “book income” (i.e., financial profits instead of taxable income).
Currently the effective minimum tax on global intangible low-taxed income (GILTI) is 10.5% of the excess of such income over 10% of depreciable tangible property. The Biden administration proposes to: (i) eliminate the 10% threshold (i.e., exemption of the first 10% return on foreign tangible assets”) and tax GILTI at dollar one, (ii) segregate and tax GILTI streams by foreign jurisdiction, eliminating profit-sharing and tax-netting opportunity among offshore branches of U.S. companies, and (iii) increase the minimum rate to 21%.
Entering a multi-national agreement under the mnemonic SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments), in place of the existing Base Erosion and Anti-Abuse Tax (BEAT). SHIELD would fix multi-lateral tax rates to eliminate U.S. deductions for tax paid in low-income jurisdictions, purportedly creating a tax “race to the bottom” under BEAT.
Repeal of the preferential tax rate of 13.125% (reverting to the 21% corporate tax rate) on foreign-derived intangible income (FDII). The Treasury report argues that, rather than encouraging corporations to keep intellectual property in the U.S., the current regime encourages offshoring tangible assets to avoid the FDII minimum threshold of 10% of depreciable tangible property.
With the increased revenue from the above proposals, one of the goals is to fund IRS enforcement to address corporate tax avoidance.