International tax proposals detailed in the Treasury Green Book-Taxes

America: International tax proposals detailed in the Treasury Green Book

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On May 28, 2021, the Treasury Department published a general invoice (“Green Paper”) of the Biden government’s proposed revenue for fiscal year 2022. The Green Paper provides additional details on the international tax proposals previously included in President Biden’s Made in America Tax Plan (see previous update). Here and here), with some new suggestions. The highlights of the international taxes in the Green Paper are:

• We will increase GILTI’s taxes and make other minor changes to the rules of GILTI and Subsection F. The Proposal increases US tax on Global Intangible Low Taxable Income (“GILTI”) of US shareholders as follows:
  • Expand GILTI’s tax base by eliminating a 10% tax exemption for permitted investments in business assets.
  • Increase in GILTI’s tax rate from the minimum tax rate of 10.5% to 21%
  • Calculate GILTI for each jurisdiction.

For domestic legal entities that are subsidiaries of the foreign parent company, the GILTI rules take into account foreign taxes paid by the foreign parent company under the applicable global minimum tax system in their territory. The proposal leaves the 80% foreign tax credit cap for GILTI tax credits, so GILTI’s US residual tax is at least 26.25% domestically (that is, 21 to 80%). It is only avoided in the case of (value divided by). ).

This proposal removes the high tax exemption for both subsection F and GILTI purposes. This proposal also abolishes Section 904 (b) (4), which affects the treatment of deductions attributable to foreign tax deductible income under Section 245A, and extends Section 265 to be exempt from tax or a US tax deduction Subject to deduction (e.g. income subject to deduction of Section 245A or GILTI inclusion subject to deduction from Section 250). In addition, the proposal abolishes GILTI’s tax exemption on foreign revenues from oil and gas mining (“FOGEI”).

These proposals will take effect for tax years beginning on or after December 31, 2021.

• Abolish BEAT and replace it with SHIELD rules. This proposal will abolish the tax to prevent the erosion of tax sources (“BEAT”). Under the proposed Stop Harmful Reversal and End Development Low Tax Rate (“SHIELD”) rules, domestic companies or branches make direct (or in some cases deemed to be) payments. Deductions are not permitted. Members of an accounting group whose income is subject to an effective tax rate below the internationally agreed global minimum tax rate (or, if no such tax rate has been agreed, the GILTI minimum tax rate of 21% based on the proposal). The SHIELD rules apply to financial reporters with annual worldwide sales in excess of $ 500 million (based on the Group’s consolidated financial statements). This proposal applies to tax years beginning on or after December 31, 2022.
• Expand the anti-reverse rule. This proposal significantly expands the anti-reverse rule as follows:
  • If a foreign legal entity acquires a domestic legal entity and the former owner of the domestic target company holds 50% or more of the shares (not 80% or more under applicable law), the foreign legal entity is owned for US tax purposes. By foreign companies treated like domestic companies (by voting rights or value)
  • Regardless of the continuity of shareholders, the “fair market value” of the domestic target is “fair” if a foreign corporation acquires a domestic target and (i) treats the foreign corporation as a domestic corporation for US tax purposes immediately prior to the acquisition. Greater than “market value”. “For overseas corporations, (ii) expansion-related groups of overseas corporations after the acquisition are administered and administered primarily in the United States, and (iii) such expansion-related groups are essential corporations in the countries where overseas corporations are organized. Not active ,.
  • Applying anti-reversal rules to the acquisition of virtually all US commercial or business assets in foreign partnerships and
  • Treat certain distributions of shares in a foreign company by a domestic company or partnership as acquisitions for the purposes of the anti-reversal rules.

These suggestions apply to transactions completed after the Effective Date.

• Limit interest deductions for unbalanced borrowing in the United States. Under this proposal, the interest deduction for an entity that is a member of a multinational accounting group is such that the members ‘net interest expense for accounting purposes is greater than the members’ proportional share of the group’s reported net interest expense. Limited to large cases. Consolidated balance sheet. If the member is unable to establish a proportional distribution of the group’s net interest expense for financial reporting purposes, or if the member chooses to do so, the member’s interest deduction will add 10% of the adjusted taxable income to that interest income. Limited to what you add (as defined) based on section 163 (j)). Interest expenses that are not permitted under this rule using either the proportional equity approach or the 10% alternative are carried forward for US tax purposes. This proposal applies to tax years beginning on or after December 31, 2021.
• Encourage taxpayers to relocate to the United States. The proposal provides general business credits equal to 10% of eligible expenses paid or incurred by U.S. taxpayers to eliminate overseas businesses and to set up, expand, or bring the same businesses to the U.S. You can move, thereby increasing employment in the United States. .. Conversely, US taxpayers will be denied deductions for expenses paid or incurred to eliminate US businesses and to set up, expand, or relocate the same businesses, resulting in US taxpayers. Employment is lost. This proposal applies to costs paid or incurred after the Effective Date.
• FDII will be abolished. This proposal eliminates the deduction of foreign intangible assets (“FDII”) and the resulting revenue will be used to “promote research and development”. This proposal applies to tax years beginning on or after December 31, 2021.
• Extension of the application of section 338 (h) (16) to sales of hybrid companies. This proposal expands the principles of Section 338 (h) (16) (which generally states that the sale of assumed assets resulting from the choices of Section 338 will determine the source or nature of the item in the application of the foreign tax credit It states that it will be ignored in making the decision. (I) Direct or indirect disposal of interests in a company that is treated as a foreign tax entity but as a US tax relay company, and (ii) Classification changes for companies, that are not recognized for foreign tax purposes (e.g. changes by selecting a check box) This proposal applies to transactions that occur after the Effective Date.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought in certain situations.

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International tax proposals detailed in the Treasury Green Book Taxes

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