Senators developing framework to overhaul Trump-era rules for international taxation

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The leaders of the Senate Finance Committee introduced a framework to overhaul rules for international taxation that were put in place by the Trump administration in the 2017 tax bill.

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Specifically, the rule changes seek to overhaul three taxes Republicans created in the 2017 tax bill: Global Intangible Low-Taxed Income (GILTI), Foreign Derived Intangible Income (FDII), and the Base Erosion and Anti-Abuse Tax (BEAT). The lawmakers say the framework looks to ensure that large, international corporations “pay their fair share.”

“The Republican tax law was a massive giveaway to mega-corporations, and corporate tax revenue has fallen through the floor. While working families have struggled to pay rent and buy groceries, companies that saw their taxes cut in half are doing better than ever before. Congress needs to ensure mega-corporations pay their fair share to fund critical investments in the American people,” Senate Finance Committee Chair Ron Wyden (D-OR) said. “That starts with ending incentives to ship jobs overseas and closing loopholes that allow companies to stash their profits in tax havens, and, instead, rewarding companies that invest in the United States. Our framework would not only generate critical revenue to pay for President Biden’s infrastructure package, it would encourage additional investment in the United States and its workers.”

Wyden is working on the overhaul with Sens. Sherrod Brown (D-OH) and Mark Warner (D-VA).

“For decades, our tax code has rewarded corporations that shut down production in the U.S. and move American jobs overseas, and the 2017 Republican tax law only made it worse, with its 50 percent off coupon for corporations that move jobs to Mexico or China,” Brown said. “Our plan is simple: Corporations should pay their fair share, just like Ohio families do, and they shouldn’t get a tax break for shipping workers’ jobs overseas. We’re going to reward companies that create jobs and invest in America.”

Regarding GILTI, the plan is to repeal the tax exemption for overseas factories that incentivizes shipping jobs overseas. The senators propose moving to a country-by-country system that prevents multinational corporations from shielding income in tax havens from U.S. tax.

“We need an international tax system that rewards companies making investments here in the U.S., particularly in cutting-edge technologies that will dictate the future success of our economy and ability to create good-paying jobs,” Warner said. “Unfortunately, the 2017 law’s changes to the international tax system were riddled with incentives that do the opposite, encouraging companies to offshore operations and jobs. This framework is a first step in allowing us to find novel, creative approaches that fix the problems with the current system and provide long-term certainty for businesses and stability for federal revenues so that we remain globally competitive.”

To overhaul FDII, the senators similarly propose ending the incentive to offshore factories and equalizing the FDII and GILTI rates. The offshoring incentive will be replaced with a provision to reward current year innovation-spurring activities in the United States, like research and development. Finally, to overhaul BEAT, the senators propose restoring the value of tax credits for domestic investment. The proposal would create a higher, second tax bracket for income associated with base erosion.

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