The US Department of Treasury released the Made In America Tax Plan, the means by which the Biden administration propose to fund the American Jobs Plan, a two trillion dollar investment proposal. The proposals in the Made In America Tax Plan provide a clear commitment to a global minimum tax for corporations impacting significantly on the work of the OECD/G20 Inclusive Framework under the BEPS 2.0 project.

The Made In America Tax Plan looks to reform the US corporate tax system to address profit shifting and tax incentives. The reforms include:

1. Raising the corporate income tax rate to 28 percent;
2. Strengthening the global minimum tax for US multinational corporations;
3. Reducing incentives for foreign jurisdictions to maintain ultra-low corporate tax rates by encouraging global adoption of robust minimum taxes;
4. Enacting a 15 percent minimum tax on book income of large companies that report high profits but have little taxable income;
5. Replacing incentives that reward excess profits from intangible assets with more generous incentives for new research and development;
6. Replacing fossil fuel subsidies with incentives for clean energy production; and
7. Ramping up enforcement to address corporate tax avoidance.

The reform most concerning Irish interests is the move to strengthen global minimum tax on a country-by-country basis. The plan emphasises the offshore incentives established through the provisions for the global intangible low-tax income (GILTI) and the foreign-derived intangible income (FDII) deduction in the Tax Cuts and Jobs Act (TCJA).

The GILTI rules impose a minimum tax rate on some controlled foreign companies (CFCs). GILTI is calculated as the total income of the CFC in excess of 10 percent of the CFC’s depreciable, tangible business assets. The total income in excess of that amount is subject to US corporation tax at a rate of 10.5 percent with a deduction being available for 80 percent of the tax paid locally. US multinationals effectively incur less than half a percent of tax in US federal taxes on Irish income under the GILTI rules. The GILTI tax liabilities are calculated on a global basis, so the deduction available for the combined local tax liability provides for the effective elimination of a GILTI tax liability in some cases.

The reforms proposed for a global minimum tax for US multinationals includes fundamental changes to the GILTI regime, eliminating the incentive to offshore intangible assets by:

• ending the tax exemption for the first 10 percent return on the assets held in the CFC;
• calculating GILTI minimum tax on a country-by-country basis; and
• ending the ability of multinationals to shield income in tax havens with taxes paid in higher tax jurisdictions.

The minimum rate of GILTI tax is proposed to increase from the current 10.5 percent rate to 21 percent. The plan does not specifically identify the amount of a deduction or credit available for tax paid locally in the calculation of the reformed GILTI tax liability.

Furthermore, deductions for offshoring production would be disallowed with additional provisions to protect against restructuring that would effectively replace the US parent company with a foreign company (corporate tax inversion). These reforms allow for “near-elimination of profit shifting”.

The current FDII regime provides for a tax rate of 13.125 percent on income returned above 10 percent of domestic tangible assets in exporting goods and services in an effort to keep intellectual property in the US. The plan will repeal the FDII regime on the basis that it merely provides tax breaks to companies achieving a return on prior innovation. The funds generated in the repeal of the FDII will be allocated to incentivising domestic R&D.

Much of the proposals contained in the plan see the US re-entering the OECD’s negotiations on Base Erosion and Profit Shifting and digital tax in a position that ensures the strength of US interests. That being said, much of US policy seems to align with OECD objectives. The plan sees some of Pillar One becoming somewhat redundant. This is not a cause for concern for many as much of the feedback provided through the consultation process called for simplification of Pillar One. However, much of the Pillar Two discussion included reference to a minimum rate of tax at the 12.5 percent rate. The 21 percent global minimum tax rate for US multinationals could reduce Ireland’s attractiveness from a tax policy perspective.

The proposals contained in the Made In America Tax Plan are to be considered by the US Congress. Irish concerns will be linked to the differential between the increased US corporate tax rate, currently proposed at 28 percent, and the reformed GILTI rate, currently proposed at 21 percent and the availability of a credit for tax paid in Ireland.