Corporate Tax

AICPA urges Congress to make clear the principles for the minimal corporate tax of 15%

The American Institute of CPAs sent a letter to the tax committees of Congress calling on lawmakers to reconsider the rules surrounding the corporate minimum tax rate, which is currently part of the reconciliation law under review.

While many of the Build Back Better Act tax proposals have been dropped in recent weeks in response to objections from Senator Joe Manchin, D-Virginia and Kyrsten Sinema, D-Arizona, the minimum corporate tax rate of 15% applies. Installment remains to help pay the $ 1.75 trillion cut in social spending and climate package. Instead of raising the corporate tax rate to 28%, as the Biden government had previously proposed, the Democrats have gradually lowered it, first to 26.5% and now to the minimum tax rate of 15% supported by the Organization for Economic Co-operation and Development.

The proposal was reiterated over the weekend when President Biden and other G20 leaders endorsed the 15% global minimum tax rate set earlier this year by the OECD and Group of 20 Finance Ministers to Curb Corporate Tax Avoidance and Profit Shifting (see Story).

However, the proposal still faces objections from Republicans in Congress, whose approval would likely be required for the Senate to ratify changes in tax treaties. In the meantime, the AICPA would like more clarity on the actual provisions. Democrats are expected to unveil the formal text of the reconciliation bill this week in hopes of a House vote on both this and the $ 1.2 trillion bipartisan infrastructure bill, despite ongoing objections to some of the provisions on Monday said that it could delay a vote in the Senate and hold up the vote in the House of Representatives.

The minimum tax on corporate profits would be a minimum tax based on 15% of adjusted financial statements (book) rather than recognized income, the AICPA noted in its letter to the leaders of the House Ways and Means Committee and Senate Finance Committee. The proposed minimum corporate tax would work similarly to the alternative minimum corporate tax, which was abolished by the Tax Cuts and Jobs Act of 2017, requiring companies to apply their taxes first on taxable income and then back on book income based on adjusted financial statements calculate which includes the current value of the assets, and pay the higher of the two.

The US Capitol in Washington, DC

Andrew Harrer / Bloomberg

The AICPA argues that collecting tax on adjusted financial statements would take the definition of taxable income out of the hands of Congress and put it in the hands of industry regulators and others. He pointed out some key differences between adjusted year-end profit and taxable income, including the notion of materiality.

AICPA would like Congress to further review and refine the rules surrounding the Senate’s proposal to introduce a minimum tax on corporate book income, as this is likely to be complex and have many significant and potentially negative effects.

“Government tax targets should not play a role in influencing accounting standards or resulting financial reporting,” the AICPA said in its letter. “The independence and objectivity of the accounting standards are the backbone of our capital market system.”

Some accountants have also raised concerns about some of the earlier Democratic proposals to raise taxes for taxpayers earning more than $ 400,000, many of which have since been dropped as well.

“For clients in the $ 400,000 to $ 450,000 range, whether they are together or single, a 2% rate hike is quite significant, especially given some of these other provisions,” said Brent Lipschultz, a partner at EisnerAmper’s Personal Wealth Group in response to previous Democratic proposals on House Means and Ways Committee. ‚ÄúThese provisions are essentially additional wage increases because they eliminate certain deductions and other things. The exclusion of qualifying small business stocks would decrease for certain individuals in certain income brackets. That’s a tax hike. It seems to me that every provision in this bill is representative of a tax increase for individuals. “

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