Tuesday, October 4, 2022
Cliff Fleming (BYU; Google Scholar) presents Viewing the GILTI Rates Through a Tax Expenditure Lens (with Stephen Shay (Boston College; Google Scholar) & Robert Peroni (Texas)) at Vienna University of Economics and Business.
Before the TCJA, the outbound income tax planning of U.S. MNEs was arguably focused on maximizing the subsidy provided by deferral of U.S. residual tax (particularly when combined with cross-crediting). The TCJA rendered deferral largely irrelevant and replaced it with strategies to maximize the amount of CFC income that qualifies for preferential tax rates provided by the GILTI regime. These rates are indisputably a tax expenditure that should be subjected to the same cost/benefit analysis that applies to direct government expenditures. This conclusion is not changed by either the recently-adopted corporate minimum tax or by the remote possibility of the United States modifying the GILTI regime to make it Pillar 2 compliant.
The GILTI rates fare poorly under cost/benefit analysis. These rates are defended principally as a subsidy to offset a broad international competitiveness challenge faced by U.S. corporations. However, the existence of such a general problem is empirically unsupported and if it does exist, the GILTI rates are a poorly targeted remedy.
More importantly, it seems unwise to divert revenue to trying to improve the international profitability of large U.S. corporations at the expense of other pressing U.S. needs.