President-Elect Joe Biden has spoken about implementing a lot of potential tax changes while on his campaign trail for president in 2020. While most of the changes he has discussed are in the individual tax realm, but he has a few international corporate tax changes that could affect U.S. corporations who own foreign corporations or have plans of moving from the U.S. into a foreign country.
GILTI (Global Intangible Low-Taxed Income)
GILTI was enacted with the TCJA back in 2017 to change the international tax regime. You can go to our past international blogs here to learn more about GILTI. Currently, GILTI only taxes the foreign corporation’s income over 10% of the qualified business assets. Also, it is taxed at the 21% corporate tax rate with an effective tax rate of 10.5% due to the section 250 deduction.
In Biden’s tax plan, the effective rate for GILTI is 21% with no section 250 deduction. It also proposes to assess GILTI on a country-by-country basis and to eliminate the exemption of 10% of qualified business assets.
Final regulations issued in July of 2020 confirmed the inclusion of a high-tax exception to avoid GILTI. The exclusion is an annual election made by the taxpayer and would apply to all related CFCs. High-taxed is confirmed to be foreign income taxed at an effective rate of at least 90% of the current corporate income tax rate, which is currently 18.9%. With Biden’s proposed corporate tax rate of 28%, this would make the new effective rate 25.2%, meaning that less CFCs would be eligible for the high-tax exception.
Thinking of Offshoring?
The proposed tax plan established a “Made in America” tax credit to offset 10% of investments geared toward creating jobs in the U.S., including restoring production, revitalizing closed or nearly closed facilities, retooling facilities to advance manufacturing employment, or expanding manufacturing payroll. The credit would be “advanceable,” meaning that a taxpayer can claim it immediately upon incurring an expense rather than wait until their annual tax return has been processed to receive a benefit.
The plan would also impose a new 10% surtax on certain goods produced overseas and consumed in the U.S., bringing the total tax rate on such production to 30.8%. This surtax would also apply to certain U.S.-targeted services performed abroad, such as work provided by call centers in foreign countries.
Questions? Let’s Talk
If you have any questions relating to your current or potential structure and how it will be affected by the proposed tax plan, please reach out to our team of international tax experts.
Connect with a member of the Barnes Dennig international tax team or call (513) 241-8313 for answers to questions you have regarding your specific tax situation. We’re here to help.