Consistent principles ought to apply across the tax code. In the case of intangible drilling costs, companies should be able to claim full deductions for the costs they incur.
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Although the dispersion of our supply chains throughout the world has been scrutinized in recent years, both inbound and outbound foreign direct investment are critical to sustaining supply chain resiliency and reducing economic risks for both firms and investors.
The proposed restructuring of the GILTI and FDII regimes makes several changes to the tax base that are largely offsetting, leaving virtually all the revenue potential to be determined by the tax rates on GILTI and FDII and the haircuts on foreign tax credits. Lawmakers should carefully weigh the trade-offs between higher tax revenues and competitiveness.
While the Biden administration has certainly proposed to remove FDII, it is not clear that Congress is on board with that approach.
Intellectual property is a key driver in the current economy. Among other things, intellectual property includes patents for life-saving drugs and vaccines and software that runs applications on phones and computers.
New data show that the recent policy changes that have been implemented by the U.S., Ireland, and dozens of other countries are having an impact. The question for policymakers is whether they will take the time to understand these impacts before jumping to the next project to change international tax rules yet again.
The tax treatment of intangible assets has come into the spotlight recently with the Biden administration proposing to undo a policy adopted in 2017 to encourage intellectual property (IP) to be located in the U.S.
As with every change in tax policy, there are trade-offs. The Modified Nexus Approach adds an additional layer of complexity to the already complex issue of taxing IP income. Linking tax breaks for IP income to its associated R&D activity has changed the game and will likely result in some businesses restructuring and relocating their IP assets and R&D activity. Effective tax rates on IP income will likely play an important role in determining optimal locations, giving measures such as R&D credits more importance. Whether this new approach to IP taxation will impact profit shifting and which countries will be the winners and losers is yet to be seen.