Senate Finance Committee Chair Ron Wyden, D-Ore., Senator Sherrod Brown, D-Ohio, and Senator Mark Warner, D-Va., unveiled their framework to overhaul international taxation and invest in America by ensuring mega-corporations pay their fair share.
The framework details an overhaul of three taxes Republicans created in their 2017 bill: Global Intangible Low-Taxed Income (GILTI), Foreign Derived Intangible Income (FDII) and the Base Erosion and Anti-Abuse Tax (BEAT).
“The Republican tax law was a massive giveaway to mega-corporations, and corporate tax revenue has fallen through the floor. While working families have struggled to pay rent and buy groceries, companies that saw their taxes cut in half are doing better than ever before. Congress needs to ensure mega-corporations pay their fair share to fund critical investments in the American people,” Chair Wyden said. “That starts with ending incentives to ship jobs overseas and closing loopholes that allow companies to stash their profits in tax havens, and, instead, rewarding companies that invest in the United States. Our framework would not only generate critical revenue to pay for President Biden’s infrastructure package, it would encourage additional investment in the United States and its workers.”
“For decades, our tax code has rewarded corporations that shut down production in the U.S. and move American jobs overseas, and the 2017 Republican tax law only made it worse, with its 50 percent off coupon for corporations that move jobs to Mexico or China,” Senator Brown said.“Our plan is simple: Corporations should pay their fair share, just like Ohio families do, and they shouldn’t get a tax break for shipping workers’ jobs overseas. We’re going to reward companies that create jobs and invest in America.”
“We need an international tax system that rewards companies making investments here in the U.S., particularly in cutting-edge technologies that will dictate the future success of our economy and ability to create good-paying jobs,” Senator Warner said. “Unfortunately, the 2017 law’s changes to the international tax system were riddled with incentives that do the opposite, encouraging companies to offshore operations and jobs. This framework is a first step in allowing us to find novel, creative approaches that fix the problems with the current system and provide long-term certainty for businesses and stability for federal revenues so that we remain globally competitive.”
To overhaul GILTI, the senators propose repealing the tax exemption for overseas factories that incentivizes shipping jobs overseas, raising the GILTI rate, and moving to a country-by-country system that prevents multinational corporations from shielding income in tax havens from U.S. tax. The senators’ proposed “high-tax exclusion” would simplify the country-by-country approach by grouping income from low-tax countries together and excluding income from countries where it is already taxed at a higher rate than GILTI. Lastly, the treatment of research and development expenses would be adjusted, so that companies would no longer pay higher GILTI rates when they invest in the United States.
To overhaul FDII, the senators similarly propose ending the built-in incentive to offshore factories and other assets and equalizing the FDII and GILTI rates. The offshoring incentive will be replaced with a new provision to reward current year innovation-spurring activities in the United States, like research and development.
To overhaul BEAT, the senators propose restoring the value of tax credits for domestic investment. To pay for this change, the proposal creates a higher, second tax bracket for income associated with base erosion; this raises revenue from the biggest base eroders, and uses that revenue to support companies investing in the United States.
A copy of the framework is available here.
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.