There are many ways the U.S.’s international tax rules could be changed, reformed, improved, or worsened. Reflexively jacking up taxes on U.S. multinationals does not necessarily accomplish the goal of reducing or eliminating profit shifting, and it would in fact worsen it.
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This interaction between the U.S. proposals and those that may be put into law in foreign jurisdictions should give lawmakers caution when evaluating the revenue potential of changes to GILTI.
7 min read
Changes to international tax rules are likely on the way, and it is therefore important for lawmakers to understand how various reform options would impact U.S. tax burdens on multinational companies. Moreover, policymakers should also recognize the need for prudent policies that do not put U.S.-based multinationals at a competitive disadvantage or severely curtail investment and hiring.
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The Biden administration’s international tax proposals would impose a 7.7 percent surtax on the foreign profits of U.S. multinationals, resulting in a net increase in profit shifting out of the U.S.
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New data clearly points to an increase in tax complexity for multinationals in the OECD as well as globally. The OECD’s ongoing efforts to reform the international tax system will likely further add complexity to the international tax environment.
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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.
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The Biden administration has targeted U.S. businesses, including corporations and passthrough entities, to raise revenue to fund new spending. However, individual taxpayers across America will end up footing the bill.
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The Biden administration has proposed to significantly increase the tax burden on foreign income through a policy known as Global Intangible Low-Tax Income (GILTI). While the administration’s rhetoric focuses on doubling the tax rate on GILTI from 10.5 percent to 21 percent, this is less than half the story.
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To discourage this form of international debt shifting, many countries have implemented so-called thin-capitalization rules (thin-cap rules), which limit the amount of interest a multinational business can deduct for tax purposes.
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The redistribution of income from the Biden administration’s tax proposals would involve many winners and losers, not only across different types of taxpayers but also geographically across the country. Launch our new interactive map to see average tax changes by state and congressional district over the budget window from 2022 to 2031.
8 min read
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.
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Explore President Biden budget proposals, including tax and spending in American Jobs Plan and American Families Plan. See Biden tax and spending proposals.
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There has been some confusion about how some parts of the recent G7 agreement on new tax rules for multinational companies might work. The new policies would target the largest and most profitable multinationals and bring in a global minimum tax.
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If the U.S. is suggesting a 15 percent effective rate as the minimum acceptable rate for a global agreement, then the tax bases of the various minimum taxes adopted as part of the agreement should be aligned to minimize complexities and unintended consequences.
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State taxation of GILTI is unconventional and economically uncompetitive and will become even more so if the federal government adopts a more aggressive approach to taxing GILTI, as outlined in the American Jobs Plan Act.
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On this episode of The Deduction, we speak with Pam Olson, Tax Foundation Board Member and Consultant on Tax Policy Services at PwC, about the tax on Global Intangible Low Tax Income, or “GILTI.” In 2017, GILTI was implemented as a minimum tax designed to disincentivize U.S. companies from shifting profits overseas, but it doesn’t work how drafters intended, and now President Biden has proposed doubling it.
If policymakers want a recipe to dramatically expand the complexity of U.S. international tax rules and the burden on U.S. multinational businesses, then a tax on foreign earnings calculated at the country level would be the way to do it. Alternatively, policymakers could focus on mitigating the unintended consequences of GILTI and other recent international tax rules.
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New international tax rules on super-profits would disproportionately impact U.S. companies however they are designed. The question that Treasury should answer is why limit the policy in such a way that magnifies that disproportionate application and the risk to the U.S. tax base.
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Many members of Congress have taken issue with the 2017 tax reform. However, the reasoning that has led some to believe that GILTI provides a path to offshoring investment and jobs is flawed.
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Both the Biden campaign and some Democratic members of Congress have recommended changes to GILTI, but before doing that, policymakers should consider how GILTI’s design can have ramifications for many U.S. companies and their tax burdens.
6 min read