Thursday, June 10, 2021
Susan C. Morse (Texas), The Quasi-Global GILTI Tax, 18 Pitt. Tax Rev. 1 (2021):
The U.S. minimum tax on global intangible low-taxed income, or GILTI, suggests a broad way of thinking about the corporate income tax. GILTI is not confined to a narrow view of a corporate tax as a national tax. Instead it rests on a global, or at least quasi-global, foundation. A foreign tax credit mechanism allows other jurisdictions to collect tax on GILTI, instead of only allowing GILTI taxes to support the U.S.fisc. Also, Treasury guidance has narrowed U.S. claims to GILTI tax revenue. As both of these features suggest, the function of the GILTI corporate tax is not limited to collecting U.S. tax revenue. Instead, GILTI is set up to support goals such as regulation, redistribution and efficiency on a global as well as national scale.
It is useful to consider the tax on GILTI as a quasi-global tax, separated conceptually from national corporate tax systems. GILTI is exacted on a specific category of corporate income—excess cross-border profit. It is due without the consent of all affected nations. In its original, aggregate design— without a country-by-country approach—it does not specify how to allocate the revenue collected. Considering GILTI as a quasi-global tax suggests reasons why a country such as the United States might want a tax on global cross-border profit even if that country does not collect the resulting tax revenue.
The quasi-global tax framework also provides the opportunity for innovation in the allocation of taxing jurisdiction. GILTI’s design allows nations to unilaterally propose tax revenue allocation approaches based on unconventional factors such as labor force exploitation or declining marginal utility of public goods. The U.S. statute logically accommodates such possibilities because it declines to say how revenue resulting from the minimum tax should be allocated as between non-U.S. jurisdictions.
The U.S. administration of GILTI has generally declined to claim more tax collection rights over GILTI for the United States. Instead, the tax-competition oriented administration of GILTI has included the allocation of deductions away from GILTI and to U.S. source income instead. This widens the tax burden difference between domestic-only corporations and multinational corporations beyond the difference contemplated by the U.S. statute. But, as a silver lining, the decision to conform to other countries’ deduction allocation methods may strengthen GILTI as a quasi-global tax.