Biden Tax Breakdown Part Two: Potentialities for Foreign Income



This week we continue our analysis of the potential impacts of current tax legislation under review in the U.S. Capitol. Expounding upon recent points made by MICPA board member Leon LaBrecque, CPA, CFP, CFA and Chief Growth Officer of Sequoia Financial Group in an overview presentation on the ‘What ifs’ of President Biden’s proposed tax plan, this breakdown will analyze impacts to foreign income should current proposals become law.

According to LaBrecque, these changes would result in significant minimum tax increases for U.S. multinational corporations the likes of Apple and Amazon. Additionally, it would increase tax revenue from this source by $309 billion.

MICPA members Sue Tuson, Shareholder – International Tax and Nick Lloyd, Principal – Tax at Clayton & McKervey broke down what those changes are, exactly:

  1. Increases the corporate income tax rate to 28% from the current 21%.
  2. Eliminates the exemption for the 10% return on foreign investment.
  3. Requires the global intangible low-taxed income (GILTI) tax to be computed on a per-country basis.
  4. Increases GILTI minimum tax to 21%.
  5. Repeals foreign-derived intangible income (FDII).
  6. Protects against corporate inversions by treating a foreign acquiring corporation as a U.S. company based on a reduced 50% continuing ownership threshold or if the foreign acquiring corporation is managed and controlled in the U.S.
  7. Pursues a global comprehensive agreement on global minimum tax providing for minimum tax rules worldwide:
    • U.S. would turn off the base erosion and anti-abuse tax (BEAT) regime when entities are resident in countries that have adopted the globally agreed upon minimum tax. The plan proposes SHIELD (Stopping Harmful Inversion and Ending Low-Tax Developments) by disallowing tax deduction for multinational corporations by reference to payments made to related parties that are subject to a low effective rate of tax. The low effective rate of tax would be defined by reference agreed upon in the multilateral agreement. If SHIELD is in effect before such an agreement is reached the default rate trigger would be the tax rate on GILTI income.
  8. Imposes a 15% minimum tax of on book income over regular tax liability for large corporations (not defined).
  9. Eliminates subsidies for fossil fuel companies. Provides a 10-year extension of the production tax credit and investment tax credit for clean energy generation and storage and making those credits direct pay.
  10. Creates new tax incentive for long-distance transmission lines for clean energy transmission. Expands tax incentives for electricity storage projects.

According to Tuson and Lloyd, MICPA members that have clients with foreign tax issues will need to ensure they understand these changes before they can discuss potential impacts. As details emerge, multinational clients will have to review their current structure to determine if any changes can be made that would minimize global tax rates. To be in a position to move quickly it will be important to understand the multinational’s current global structure and intercompany transactions. Review transfer pricing policies to make sure that they make sense in terms of the current business operations, risks, responsibilities and IP ownership perspectives. 

Understanding the business operations will put tax advisors in a better position when tax law changes are proposed so that they can advise their clients on possible steps to take. While it is difficult to advise clients when there are no specific details related to the proposed changes, it does allow “what-if” discussions to occur. Clients can consider how an increase in tax will impact their margins and may consider it when entering into long term planning. For those making new foreign investments, they may want to consider using check-the-box eligible entities that would allow for some flexibility in U.S. tax structuring. 

The U.S. Treasury Department is already proposing a 15% global minimum tax – at least – according to CNBC1. The challenge, according to Tuson and Lloyd, is getting other countries to adopt it. “That is a huge hurtle to try and get over.”

For now, advisors should keep their ear to ground for further movement on these emerging tax issues. MICPA members can continue the conversation on MICPA Connect to share strategies, discuss emerging issues and engage with other members on this and other pressing topics.

  1. Cox, Jeff. “U.S. Proposes Global Minimum Corporate Tax…CNBC. 20 May 2021. Accessed on 20 May 2021.

Source: MICPA

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