3 minute read 8 Sep 2021
Man signing bill

Significant changes proposed to current international tax rules

Authors
Craig Hillier

EY Americas International Tax and Transaction Tax Services Leader

Experienced US tax advisor with broad international and sector knowledge. Barrister and Solicitor.

Jeffrey Michalak

EY Global International Tax and Transaction Services Leader

Passionate about providing exceptional client service. Dedicated to developing and mentoring people to help them achieve their highest potential.

3 minute read 8 Sep 2021
Related topics Tax

Key Senate Democrats have put forth a discussion draft of legislation that would dramatically change the international tax system.

Senate Finance Committee Chairman Ron Wyden (D-OR), along with Senators Sherrod Brown (D-OH) and Mark Warner (D-VA), issued a discussion draft of legislative text detailing their previously released April 2021 international tax framework, which would amend the current rules on global intangible low-taxed income (GILTI), foreign-derived intangible income (FDII), the Base Erosion and Anti-Abuse Tax (BEAT) and other rules.

While many practical and policy details remain to be determined, the proposals, if enacted would:

  • Establish a mandatory country-by-country high-tax exclusion system for GILTI, subpart F, and foreign branch income
  • Potentially extend the foreign tax credit haircut (currently applicable in the GILTI context) to the subpart F and foreign branch income contexts
  • Require certain research and experimentation and stewardship expenses to be allocated to US-source income
  • Modify the rules for determining BEAT liability such that certain "base erosion income" would be subject to a different, and higher, rate
  • Leave open the possibility that certain (currently undefined) modifications to BEAT may be made to incorporate the purposes and policies of the Biden Administration's Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) proposal
  • Base the FDII regime on certain domestic innovation expenditures

The provisions are generally proposed to be effective for tax years beginning after the date of enactment with the notable exception of the modifications to FDII, for which no proposed effective date is provided. 

Read the full article here

Summary

The discussion draft provides important details and is the first draft of legislative text for potential changes to the international tax system proposed by Chairman Wyden and other Democrats on the Senate Finance Committee. Companies will need to model out and understand the impact of these provisions to prepare for the potential changes.

About this article

Authors
Craig Hillier

EY Americas International Tax and Transaction Tax Services Leader

Experienced US tax advisor with broad international and sector knowledge. Barrister and Solicitor.

Jeffrey Michalak

EY Global International Tax and Transaction Services Leader

Passionate about providing exceptional client service. Dedicated to developing and mentoring people to help them achieve their highest potential.

Related topics Tax