Corporate Tax

US firms and world minimal tax measures make clear home, debate goes to Senate – MNE Tax

By Doug Connolly, MNE Tax

The US House of Representatives today approved a modified version of President Biden’s Build Back Better Act – including changes to corporate and international taxes – after long debates over the revenue and economic impact of the regulations. The Senate will pick up on the bill sometime after the Thanksgiving holiday and likely continue to tinker with controversial regulations.

The bill contains several important international, corporate and individual tax provisions. Among other things, changes to the US international tax system would aim to bring it into line with the OECD global tax treaty by changing the global provisions for low-taxed intangible income to introduce a higher tax rate and a country-specific calculation. The tax provisions of the draft law also include the controversial minimum accounting tax for large corporations.

The controversy over the minimum corporate tax rate continues

Although Biden proposed a book-income-based minimum corporate tax-based tax plan in his comprehensive early tax plan published in May, the idea didn’t gain much support in Congress until moderate Senator Kyrsten Sinema (D-Ariz.) Protested an increase in corporate tax rates in the fall included in the invoice. Since the Democrats could not afford to lose a Senate vote, the corporate minimum tax was substituted for the interest rate hikes favored by most Democratic lawmakers.

The concept was championed by progressive Senator Elizabeth Warren (D-Mass.), Who paid little to no income tax on it in a publication on the 18th. It notes that in the past year alone, more than 70 public corporations generated profits of more than $ 1 billion while paying effective tax rates of less than 15% – and in some cases even receiving “net tax refunds”.

If the preference for a minimum corporate tax versus rate hikes is based on the idea that rate hikes hurt economic growth, that preference may be misguided, according to Thornton Matheson and Thomas Brosy of the Tax Policy Center. In a Nov. 18 article, they contend that the corporate minimum tax, by undermining the benefits of tax incentives to stimulate investment, would have a stronger dampening effect on corporate investment than modest increases in corporate tax rates.

Other critics of the minimum tax include the American Institute of CPAs, which recently claimed the regime was too complex and could lead companies to skew their book revenues, and the Tax Foundation, which argues that it could disproportionately and inadvertently affect certain industries.

Despite its critics, the provision remains politically popular, with a recent poll showing it enjoys “overwhelming bipartisan popularity” with voters.

Revenue debate settled

Moderate Democrats’ concerns about the revenue impact seem to have subsided when the Congressional Budget Office released its revenue estimates on Nov. 18. The CBO predicted the bill would add $ 367 billion over 10 years to the deficit – but disregarding revenue gains from increased investment in IRS tax enforcement.

The U.S. Treasury Department claimed that increased enforcement by the IRS on the bill would generate $ 480 billion in additional revenue – $ 400 billion net after accounting for the $ 80 billion cost of the investment. CBO was much more conservative, estimating that the cash allocation to step up tax enforcement would only bring in an additional $ 207 billion, which equates to a balance of $ 127 billion.

Some have claimed that the CBO’s estimates are too conservative. Former Treasury Secretary Larry Summers wrote a comment in the Washington Post describing the CBO estimate as “conservative to the point of implausibility.” Similarly, Senate Finance Committee Chairman Ron Wyden (D-Ore.) Was also prone to undermining the CBO’s estimate, saying in a statement following the CBO’s release, “I am confident that the Treasury Department is supported by experts and IRS Commissioners appointed by Republican and Democratic presidents. ”

Only time will tell – assuming the final bill is accepted – whether the Treasury’s or the CBO’s estimate is more accurate. However, after the revenue estimates for corporate and international tax measures contained in the bill have been largely confirmed, the moderate Democrats at least in the House of Representatives seem to help the government in case of doubt.

“The combination of last week’s CBO results, Joint Taxation Committee estimates and financial analysis,” Treasury Secretary Janet Yellen said in a statement the night before the law was passed, “makes it clear that Build Back Better is being paid for in full . “

Doug Connolly is the Editor-in-Chief of MNE Tax. He has more than 10 years of experience in tax law developments and previously worked for both a Big Four law firm and a leading legal publisher. He holds a law degree from the American University’s Washington College of Law.

Doug Connolly

Doug Connolly

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