FY2023 budget includes new details on international tax proposals

FY2023 budget includes new details on international tax proposals

The budget proposals, if enacted, would significantly impact multinational corporations.

In its FY2023 explanation of the Biden Administration's revenue proposals, the United States Treasury offers several new international tax proposals that build upon the Build Back Better Act (BBBA), which was passed by the US House of Representatives in November 2021 but stalled in the US Senate. The budget treats the BBBA as enacted, with its revenue estimates scored against the BBBA as the baseline.

The Budget's international tax proposals would:

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  • Raise the corporate income tax rate to 28% — and thereby raise the effective rate on global intangible low-taxed income (GILTI) to 20%
  • Replace the base erosion anti-abuse Tax (BEAT) with an "undertaxed profits rule" (UTPR) that is consistent with the UTPR described in the Pillar Two Model Rules developed by the Organisation for Economic Co-operation and Development (OECD)
  • Create a new general business credit equal to 10% of eligible expenses incurred when onshoring a trade or business to the United States
  • Disallow deductions for expenses incurred when moving a US trade or business offshore
  • Permit taxpayers to retroactively elect, in certain circumstances, to treat a passive foreign investment company (PFIC) as a qualified electing fund (QEF) without IRS consent
  • Require IRC Section 6038 reporting for each foreign "taxable unit" to facilitate the BBBA's proposals for country-by-country GILTI and foreign tax credit (FTC) rules

The proposals have various effective dates. The budget indicates the Biden Administration's expectation to proceed with the proposals in last year's BBBA, which passed the House but has not passed the Senate. There are important additions, however. Most importantly, the budget's proposal to increase the corporate (and thus GILTI) rate would be expected to pose additional tax liabilities on taxpayers on top of increases expected from the BBBA's move toward country-by-country GILTI and FTC regimes, among other BBBA changes. These increases are also in addition to the CAMT, which some had viewed as a substitute for the rate increases; a higher corporate rate could, however, reduce the likelihood that some taxpayers are subject to the CAMT.

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Summary

Multinational corporations will want to monitor these proposals and model their potential impact. 

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