TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, November 22, 2017

Senate Bill Contains Three Spring-Loaded Tax Increases On Multinationals Beginning In 2025 If Economy Lags

Bloomberg:  ‘Future Tax Traps’ Lurk for Multinationals in Senate's Proposal, by Lynnley Browning:

Senate Republicans tucked some multibillion-dollar tax increases for corporations into the 515-page tax bill they released this week — spring-loaded hikes that would begin after 2024 if the economy doesn’t grow as fast as GOP lawmakers have promised.

Some of the taxes in question aim squarely at companies like Apple and Alphabet, which rely on intellectual property, also known as “intangibles,” that they’ve transferred to overseas subsidiaries, tax experts say. Spokesmen for the two tech giants didn’t respond to requests for comment Tuesday.

“These so-called ‘sunrise’ provisions essentially are future tax traps for unsuspecting multinationals,” said David Sites, a partner in Grant Thornton's National Tax Office in Washington. In all, changes made by the Senate Finance Committee last week would boost revenue from international provisions aimed at such companies by about $55.6 billion over a decade, to $154.6 billion; most of the increase would come in 2026 and 2027. ...

[The Senate Bill] contains three new taxes aimed at preventing companies from sending taxable income overseas to affiliates in jurisdictions with even lower tax rates:

  • A new levy on “global intangible low-taxed income,” or GILTI, would make any such income received by a U.S. company’s offshore unit immediately subject to the new 20 percent tax rate. Companies would be entitled to a 50 percent deduction on that income, resulting in an effective tax rate of 10 percent. After 2025, though, the deduction would be set to shrink, taking the effective rate to 12.5 percent.
  • Another change would create a separate 12.5 percent tax rate on “foreign derived” income from intangibles that comes specifically from trade or business in the U.S., not from overseas sales. After 2025, that rate would be set to grow to 15.625 percent. That rate is designed to give companies an incentive to locate valuable IP in the U.S., tax experts say.
  • And a third new provision, called the “base erosion and anti-abuse tax,” or BEAT, would apply to other payments companies make to their overseas units, such as loan payments. That rate would begin at 10 percent and be set to grow to 12.5 percent in 2026.

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Comments

I've been saying for years that we need sunrise provisions based on economic output. I have just been advocating for automatic tax cuts to low and middle-income taxpayers when GDP turns negative for two or three quarters.

Posted by: HTA | Nov 22, 2017 10:46:47 AM