Corporate Tax Rates Face Global Increase
With the Biden administration and G-20 leaders agreeing on the need for more revenue, the U.S. and other countries are moving forward on increasing tax rates on multinational corporations. Earlier in July, G-20 leaders agreed on a plan to impose a minimum tax rate of 15% on corporations and to keep companies from shifting their profits to low-tax countries. Between the U.S. and international moves, companies are turning to tax experts for advice on how to minimize their taxes. New data released by the Organization for Economic Cooperation and Development (OECD) indicated that multinational corporations have continued to shift their profits to other countries despite record low tax rates.
Proposed changes from the Biden administration would reverse some of the provisions of the Tax Cuts and Jobs Act (TCJA) of 2017, increasing the 21% corporate tax rate. This could upend the careful tax planning that companies have been doing with their clients after passage of the TCJA. Doubling the Global Intangible Low-Taxed Income (GILTI) is not going to be viewed as an overly positive development for those who are subject to the rate.
What are the major changes that are in store for the US? While the bipartisan group of senators have struck a deal on the infrastructure plan, there are still others that oppose any tax increases. The administration hopes to move the infrastructure legislation on a parallel track with a $3.5 trillion budget resolution to fund what they call “human infrastructure.” After passage of the TCJA, the Treasury Department and the IRS needed to spend the next few years developing regulations to implement the various provisions of the 2017 tax overhaul. While the infrastructure plan at least seems to be making progress, the shape of the tax provisions in the larger budget bill remain uncertain. One of the offsets to help pay for the increased social spending was supposed to be increasing the IRS’s enforcement budget to pull in more tax revenue and close the tax gap but it was met with backlash.
Global minimum taxes. The latest moves by both the Biden administration and the OECD toward a global minimum corporate tax rate are just one element of a wider reaction against the overall lowering of rates. The OECD’s international tax reform discussions on base erosion and profit-shifting were underway long before the Biden administration added new momentum this year with its proposal for a global minimum tax rate. While the OECD timeline may seem ambitious, experts believe the proposals may be ratified and introduced within three years. Advocates for raising corporate tax rates are hoping the OECD and the G-20 will go even further in their negotiations. While the initial plan calls for a 15% minimum, advocates are hoping to get above a 20% minimum for global corporate taxes. Another important detail is having digital companies taxed if they operate in your territory. Countries that are benefiting from offering the lowest tax rates would need to sign off on the plans before all the proposals for a global minimum tax rate could work.
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