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International Taxes

The Tax Cuts and Jobs Act (TCJA) in 2017 took a new direction for the treatment of U.S. multinationals. Six significant reforms departed from the old system:

  1. The federal corporate tax rate was lowered from 35 percent to 21 percent.
  2. A participation exemption was created for foreign-earned dividends (territorial treatment).
  3. A new reduced tax rate was created for domestic income from intangibles earned from foreign sources (Foreign Derived Intangible Income, or FDII).
  4. A special minimum tax was imposed on foreign income (Global Intangible Low Tax Income, or GILTI).
  5. A tax was placed on cross-border expenses between a parent company and its subsidiaries (Base Erosion and Anti-abuse Tax, or BEAT).
  6. A temporary transition tax was levied on all previously unrepatriated earnings.

The U.S. no longer has a worldwide tax system for taxing corporate income. But it does not have a truly territorial system either. Instead, the U.S. now has a hybrid system with some worldwide taxation, without deferral, for certain foreign income because of GILTI and Subpart F and a tax on certain cross-border transactions.

Countries participating in the OECD Inclusive Framework’s negotiations on cross-border tax rules hope to reach an agreement by mid-2021. After negotiations stalled somewhat in 2020, there is hope that US Treasury Secretary Janet Yellen’s commitment to reaching an agreement will allow progress to be made this year.

The posts below include our research and analysis of policies related to cross-border tax rules, including Global Intangible Low Tax Income (GILTI), Foreign Derived Intangible Income (FDII), Base Erosion and Anti-abuse Tax (BEAT), and the Global Anti-base Erosion (GloBE) rules in the context of the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

International Tax Rules Primer    U.S. Tax Competitiveness Primer    GILTI Primer    FDII Primer    Learn more with TaxEDU

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