Made in America Tax Plan Biden Admin outlines tax reform proposals

On March 31, 2021, the White House released a factsheet outlining the American Jobs Plan, a $ 2.3 trillion infrastructure spending proposal that includes certain significant tax credits, and the Made in America Tax Plan , a tax proposal, was outlined to generate income to pay for the expenses of the American Jobs Plan. The White House estimates the Made in America tax plan will generate $ 2 trillion in tax revenue over the next 15 years.

The Made in America Tax Plan includes a number of proposals primarily aimed at multinational corporate taxpayers, many of which are similar to those proposed by President Biden during his presidential campaign. The proposals include a significant increase in the US corporate tax rate (but still well below the pre-2017 rate), a “minimum tax” on book income for large corporations, and major changes to some of the international tax rules that were introduced under the Tax Reduction and Jobs Act Year adopted in 2017.

The factsheet is not a bill, and every element of the Made in America tax plan must be introduced and passed by Congress before it can become law. It is very likely that some or all of the Made in America Tax Plan proposals will be significantly changed before the law goes into effect. In addition, Senate CFO Ron Wyden (D-Ore.) And Senators Sherrod Brown (D-Ohio) and Mark Warner (D-Va.) Presented a separate international tax proposal on April 5, 2021. The Senators’ plan is slightly different from the Made in America tax plan.

The remainder of this post has a brief summary of the proposals under the Made in America Tax Plan and the American Jobs Plan Tax Credits:

Increase in the corporate tax rate

Under the Made in America Tax Plan, the US federal corporate tax rate would be increased from 21% to 28%. The Tax Foundation has estimated that taking state and local taxes into account, the total U.S. corporate tax rate would be 32.34%, which would be the highest in the OECD. (The Tax Foundation estimates the United States is currently the twelfth highest in the OECD, with a combined US federal, state, and local rate of 25.76%.)[1]

Revised GILTI regime

The “Low Global Intangible Tax Income” (“GILTI”) was enacted under the Tax Reduction and Employment Act. In general, GILTI charges a minimum tax of 10.5% on 10% US corporate shareholders of “controlled foreign corporations” based on the “active” income of the controlled foreign corporation, which is a threshold of 10% multiplied by the tax base of the foreign corporation exceeds in certain depreciable property, plant and equipment.[2] (This basis is known as a “Qualified Corporate Investment” or “QBAI”.) GILTI is not determined by country and therefore a US multinational may be able to avoid GILTI tax under applicable law in relation to its subsidiaries operating in countries with low tax rates, by “mixing” the low tax rate with the income of subsidiaries operating in countries with high tax rates.

The Made in America Tax Plan would make three changes to the GILTI regime.

  • The effective tax rate for GILTI for corporation taxpayers would increase from 10.5% to 21%, which would increase the effective tax rate for GILTI to 75% of the corporate tax rate (21% / 28% assuming US corporation tax) raised from 50% of the corporate income tax rate under applicable law (10.5% / 21%) to 28%.

  • GILTI would have to be determined from country to country. Accordingly, income generated in countries with a low tax rate would be subject to GILTI, while under current law it would be mixed with higher taxed income and could either reduce or eliminate GILTI altogether.

  • The 10% QBAI exclusion would be removed.

Together, these proposals would change the GILTI regime in a way that generally taxes foreign income from US multinational corporations at a much higher rate and makes offshore investment by US multinational corporations much less attractive than under current law.

Repeal of the FDII regime; Expansion of R&D investment incentives

The Foreign Intangible Income Regime (FDII) is designed to counterbalance the GILTI regime by encouraging US multinational corporations to keep intellectual property in the United States by ensuring a lower effective tax rate of 13.5% sets overseas sales and the provision of certain services to non-affiliated overseas parties greater than 10% times the taxpayer’s QBAI.[3]

The Made in America tax plan would abolish the FDII regime in its entirety. The factsheet does not specify that the proceeds from the repeal of the FDII regime will be used to expand more effective investment incentives for research and development (“R&D”).

Multilateral global minimum tax agreement and replacement of BEAT

The factsheet shows that the Biden administration will seek a global agreement on a strong minimum tax through multilateral negotiations and repeal the “Basic Erosion and Abuse Tax” (“BEAT”) and replace it with a regime that will allow US multinationals to deduct refuses to make payments to countries in countries where the minimum tax has not been introduced. (The BEAT is a 10% minimum tax that applies to very large multinational corporations and limits the deductions for certain transactions with related foreign persons.)[4]

Strengthening anti-inversion rules; Imposing US taxes on overseas corporations with US management and operations

According to the factsheet, President Biden will seek to prevent US companies from merging with overseas corporations and lowering their US federal income tax while maintaining management and business in the US. It is unclear whether the merger would be taxable or whether such a resulting foreign company would be treated as a US company. It is also unclear what impact this proposal could have on foreign companies that were previously inverted.

Elimination of deductions for expenses related to “offshoring jobs” and new tax credits for “onshoring jobs”

The Made in America tax plan would eliminate deductions for expenses incurred in offshoring jobs (that is, moving a factory from the United States to another country) and would provide tax credits for onshoring jobs. There are no details on these proposals.

Minimum corporation tax on “book income”

The Made in America tax plan would impose a minimum 15% tax on “large, profitable companies” based on “book revenue,” which appears to be GAAP revenue. This proposal is in line with President Biden’s proposal to impose a minimum 15% tax on book revenues for companies with book revenues in excess of $ 100 million. The proposal does not specify how the minimum tax will be calculated for companies that use IFRS or other non-GAAP accounting policies.

Fossil fuels and environmental remediation

The Made in America tax plan aims to eliminate all subsidies, loopholes, and special overseas tax credits available to the fossil fuel industry. The factsheet also indicates that the plan would restore polluters to the Superfund Trust Fund to cover environmental cleanup costs.

Strengthening enforcement against companies

The Made in America tax plan also suggests stepping up enforcement against businesses by increasing funding and resources for the IRS, with a stated goal of increasing auditing rates.

American Jobs Plan tax credits

Aside from the proposed tax changes in the Made in American Tax Plan, the American Jobs Plan also proposes a number of tax credits. These tax credits include:

  • POS discounts and tax incentives for purchasing American-made electric vehicles;

  • A business tax credit for low- and middle-income families and small businesses to invest in disaster resilience;

  • A targeted investment tax credit for the construction of high voltage capacitance lines;

  • An investment tax credit and a production tax credit for clean energy generation and clean energy storage;

  • Reform and expansion of the tax credit according to Section 45Q, which provides for a tax credit per ton for CO2, which is bound by new equipment put into operation. The American Jobs Plan proposed paying the lending directly and making it easier to use for certain industrial applications, air sensing, and retrofitting to existing power plants.

  • Targeted tax credits to expand affordable rental opportunities in underserved communities;

  • The Neighborhood Homes Investment Act tax credit (which is said to be $ 20 billion over five years) for building or renovating 500,000 homes;

  • Expansion of Home and Commercial Facilities Efficiency Tax Credits under the Weatherization Assistance Program;

  • A tax credit (50% of the first $ 1 million in construction costs per facility) to promote the construction of childcare facilities in the workplace; and

  • An extension of the Section 48C Tax Credit Program aimed at building robust U.S. manufacturing capacity to support clean energy projects with American-made parts and equipment.

[1] See Biden Infrastructure Plan: American Employment Plan | Tax foundation.

[2] Pursuant to Section 250, the 10.5% rate is provided through a 50% deduction, which is generally not available to non-corporate taxpayers unless a Section 962 election is made. All section references are for the Internal Revenue Code.

[3] The lower effective rate is achieved through a deduction. See section 250.

[4] Section 59A. Companies subject to BEAT are generally companies with gross annual revenues greater than $ 500 million and whose base erosion percentage is 3 percent or more. A soil erosion percentage is generally the tax benefit of the soil erosion divided by the company’s total deductions.

© 2020 Proskauer Rose LLP. National Law Review, Volume XI, Number 96