Marna Ricker, EY Americas Vice Chair – Tax, discusses the Build Back Better bill and its impact on corporations doing business in the US.
This $1.75T bill would include funding for President Biden’s social spending package, along with clean energy and climate investments and targeted incentives to spur new domestic supply chains.
While much can change, now is the time to look at headlines on the tax side – they are significant!
While corporate tax rates stay the same, Build Back Better includes a 15% minimum tax based on book income for large companies reporting over $1B dollars in profits. Keep in mind, this would be very different from the prior corporate alternative minimum tax.
- There would also be an ~15% tax on the foreign earnings of US businesses and a provision to require FTC determinations on a CBC basis.
- BBB would also add a surtax on individual income over $10M dollars as well as a 1% tax on corporate stock buybacks
- The bill includes $80b to overhaul of tax administration and for IRS enforcement
These changes would impact nearly every corporation doing business in the US. If enacted, it would mean that the US Congress has rewritten the US Tax code twice in just four years – starting with the Tax Cuts and Jobs Act in 2017 and now BBB.
At EY, we see three significant areas of BBB that could impact businesses – effective rate increases, increased deal pricing for M&A and supply chain model impacts.
Effective rate increases
For corporations that report $1B or more in profits, the proposed 15% corporate minimum tax could mean cash effective tax rate increases, as well as for those companies with significant book-tax timing items or stock option expenses.
The international tax regime in BBB would also mean an increase in the taxes paid by most, if not all, US multinational corporations.
Increased deal pricing for M&A
This legislation could result in increased deal pricing and costs for M&A, so we may see an increase in tax-free transactions in 2022 and beyond. It could also make tax-efficient global financing more complex, with an increased need to focus on changing inbound and outbound tax rules for multinational enterprises.
Supply chain model impacts
Supply chain has been front and center throughout the pandemic.
Today, corporations are moving to more agile supply chain models by basing manufacturing and distribution closer to customers, and BBB could have a significant impact on these strategies. This includes everything from the targeted incentives to spur development of domestic supply chains, to the tax implications related to the exits of existing models.
It’s also essential to keep an eye on the broader global tax landscape. As part of the OECD’s BEPS project, leaders of the world’s 20 biggest economies recently came out in support of a 15% global minimum tax, as well as support of reallocating taxing rights to countries where customers are based and goods and services are sold.