Paul L. Caron

Friday, January 28, 2022

International Tax Planning For Domestic Multinational Corporations: Optimizing Effective Tax Rates

Cody Wilson (Gibson Dunn, Dallas), International Tax Planning for Domestic Multinational Corporations: Optimizing Effective Tax Rates by Turning Sticks into Snakes and Implementing Other Strategies, 15 Va. L. & Bus. Rev. 45 (2020):

The Tax Cuts and Jobs Act overhauled the U.S. international tax regime and drastically changed the mechanisms, known as favorable permanent differences, for optimizing a domestic multinational corporation's Effective Tax Rate (ETR) as measured by financial accounting. This constitutes a notable change because optimizing the ETR maximizes two indicators that investors widely use to gauge a corporation's profitability: net income and earnings per share.

This Article provides guidance to tax lawyers tasked with optimizing a multinational corporation's ETR.

They must avoid the base erosion anti-abuse tax (the BEAT), utilize foreign-derived intangible income (FDII), and manage global intangible low-taxed income (GILTI) by affirmatively planning into the Subpart F regime at times. Interestingly, by design, the GILTI and Subpart F regimes were to serve as anti-deferral sticks that beat on the heads of taxpayers, but together, they can metamorphose into snakes that bite the Commissioner on the hind part by helping to minimize a multinational corporation's U.S. tax expense and thus optimize its ETR.

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