On April 7, 2021, the U.S. Department of the Treasury released a report (the “Treasury Report”) that describes the Biden Administration’s “Made in America Tax Plan.” The Made in America Tax Plan was originally outlined by the Biden Administration in a fact sheet released on March 31, 2021 (the “Fact Sheet”). Click here for our prior client update on the international tax proposals in the Fact Sheet.
The Treasury Report provides some additional details regarding the international tax proposals described in our prior client update, including the following:
- The proposed replacement for the base erosion and anti-abuse tax (the “BEAT”), called the “SHIELD” (Stopping Harmful Inversions and Ending Low-tax Developments), would deny multinational corporations U.S. tax deductions for payments made to related parties that are subject to a low effective rate of tax. If the United States and the international community reach an agreement on corporate minimum taxation providing for minimum tax rules worldwide, the tax rate trigger for the SHIELD would be defined by reference to the minimum rate agreed upon in such international agreement. Until such time as an international agreement is reached, the default tax rate trigger would be the Made in America Tax Plan’s proposed 21% minimum tax rate on global intangible low-taxed income (“GILTI”).
- As a backstop to the SHIELD, the anti-inversion rules would be significantly expanded by generally treating a foreign corporation that acquires a domestic target as a domestic corporation for U.S. tax purposes if either (i) the former owners of the domestic target own (by reason of their ownership of the domestic target) 50% or more of the stock of the foreign acquiring corporation after the acquisition or (ii) the foreign acquiring corporation is managed and controlled in the United States.
As discussed in our prior update, the Made in America Tax Plan also proposes to repeal the deduction for foreign-derived intangible income (“FDII”) and increase the taxes imposed on GILTI. However, the Treasury Report does not provide any new details on these changes.
Earlier in the week, Senate Finance Committee Chair Ron Wyden (D-Oregon), along with Finance Committee members Sherrod Brown (D-Ohio) and Mark Warner (D-Virginia), released a proposed framework to overhaul the international tax system. A number of the proposals in the framework are consistent with the Made in America Tax Plan. However, several of the proposals in the framework are different, including (i) leaving open the minimum tax rate on GILTI, (ii) revising (rather than repealing) the FDII regime by replacing the FDII deduction with a deduction for “innovation-spurring activities” in the United States and equalizing the FDII and GILTI rates, and (iii) reforming the BEAT by raising the tax rate on base eroding payments and providing value for domestic business tax credits.
We will continue to monitor developments and will provide further updates as more details are released. In the meantime, Baker Botts would be pleased to assist you in your analysis of the proposals in the Made in America Tax Plan and other international tax proposals.
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm of more than 700 lawyers practicing throughout a network of 13 offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology, and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.