The US Treasury department has released President Biden’s Made in America Tax Plan which includes details for an ambitious global tax reform
One of the most significant parts of the proposals relate to the taxation of foreign profits. The US wants to revise the global intangible low taxed income (GILTI) tax rate, raising it to 21% from the current 10.5%, then calculating this rate on a country-by-country basis.
Currently, US corporate shareholders holding 10% of controlled foreign corporations (CFCs) pay a minimum tax of 10.5%, based on the CFC’s collected active income.
The new proposals mean that income earned in low tax rate countries would become subject to a global intangible low taxed income rate to prevent multinationals avoiding tax by diluting their income from subsidiaries operating in low tax rate countries with income from those in high tax rate countries.
The ambitious tax reform proposals from President Biden are hoped by the administration, to spur a worldwide change in how and where companies are taxed, with the Biden team hoping to come to an agreement with negotiators on a global minimum tax rate by July.
The goal of Biden’s new tax plan is to ‘make American companies and workers more competitive by eliminating incentives to offshore investment, substantially reducing profit shifting, countering tax competition on corporate rates, and providing tax preferences for clean energy production’.
The plan also includes proposals to raise the federal corporate income tax rate from 21% to 28%. It will also enact a 15% minimum tax on book income of large companies that report high profits of over $2bn (£1.46bn) in income. The Biden administration estimates that this change would affect around 45 corporations in the US, including IT giants such as Google, Amazon and Facebook. Another proposal is to eliminate tax subsidies for the fossil fuel industry and create incentives for clean energy production, rolling back elements of President Trump’s 2017 tax cuts.
The Treasury also stated that while US profits have soared to historic highs as a percentage of GDP, corporate taxes collected have dropped to 1% of GDP since the Trump tax cuts.
The reforms in the Made in America tax plan are aimed at levelling the playing field between domestic and foreign corporations, improve economic efficiency within the US, and replace flawed incentives that reward excess profits from intangible assets with more generous incentives for new research and development.
The reforms promised in the tax plan will help fund Biden’s American Job Plan that was released on 31 March 2021. This proposes new federal spending of $2.7 trillion over the next eight years, from 2022 to 2029. Some of the spending will go towards renewing and rebuilding infrastructure such as highways, bridges, airports and transit systems, providing a renewed electric grid, and high-speed broadband to all Americans, and an investment on revitalising manufacturing along with other industries as well as training for the jobs of the future.