Senate Finance Committee Democrats unveiled a “discussion” draft bill that would implement certain international tax proposals included in the Biden Administration’s Made in America Tax Plan and generally follows the Senate framework for international tax reform proposed on April 5, 2021. Among other key proposals, the discussion draft revamps the U.S. subpart F rules and Global Intangible Low-Taxed Income regime (GILTI), which it renames Global Inclusion of Low-Tax Income, to ensure that income of a controlled foreign corporation (CFC) is taxed at a minimum rate on a country-by-country basis.
While the discussion draft does not address specific tax rates, it clearly contemplates a higher rate of current U.S. taxation on GILTI. In contrast with the Biden Administration and House proposals to date, the discussion draft creates exemptions on a county-by-country basis from current income tax for high-tax foreign income that otherwise would be subject to GILTI, subpart F, or direct U.S. taxation (with respect to income earned in a high-tax foreign branch). In addition to reforming GILTI and conforming the subpart F regime to more closely align with the reformed GILTI rules, the discussion draft proposes significant changes to the foreign tax credit rules and the Foreign-Derived Intangible Income deduction (FDII) regime to encourage domestic R&D. The discussion draft retains the Base Erosion and Anti-Abuse Tax (BEAT) and applies a higher rate of tax for payments to low-tax jurisdictions. While the discussion draft is broadly consistent with the objectives described in the Made in America Tax Plan, it leaves open critical policy determinations regarding rates and the availability of offsets, as noted below. The Senate Democrats envision this draft bill being included in the $3.5 trillion budget reconciliation bill.
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