Discussion draft would invest in America by ensuring mega-corporations pay their fair share
Washington, D.C. – Senate Finance Committee Chair Ron Wyden, D-Ore., Senator Sherrod Brown, D-Ohio, and Senator Mark Warner, D-Va., today unveiled their draft legislation to overhaul international taxation and invest in America by ensuring mega-corporations pay their fair share. The section-by-section summary is available here.
The discussion draft builds on the framework released in April, providing a second opportunity for the public to submit comments for consideration. It details an overhaul of three taxes Republicans created in their 2017 bill: Global Intangible Low-Taxed Income (GILTI), Foreign Derived Intangible Income (FDII) and the Base Erosion and Anti-Abuse Tax (BEAT).
The senators are requesting comments on the discussion draft by September 3, 2021.
Key updates in the discussion draft include providing the operational mechanics of the country-by-country high-tax exclusion system, including how to aggregate entities within a country using the “tested unit,” and the specific calculations for the new “domestic innovation income” and “base erosion income” concepts. Additionally, the discussion draft’s tailored approach shows significant existing architecture in GILTI, FDII and BEAT would be retained, making taxpayer compliance and administration simpler.
“The Finance Committee is making steady progress in developing our proposals for the reconciliation bill, and overhauling the international tax code is central to our efforts to restore fairness and fund critical investments like the paid leave and the expanded child tax credit—Social Security for our children,” Chair Wyden said. “The Republican tax law was a massive giveaway to mega-corporations, and corporate tax revenue is down nearly 40 percent since before 2017. While working families have struggled to get ahead, companies that saw their taxes cut in half are doing better than ever before, and paying less in taxes than any time since World War II. To right the ship, we’re ending incentives to ship jobs overseas and closing loopholes that allow companies to stash their profits in tax havens. Instead, we’re going to reward companies that invest in the United States. Our draft legislation would generate critical revenue to pay for priorities in Democrats’ reconciliation bill, and encourage additional investment in our country and its workers.”
“Instead of bigger offshore corporate bank accounts, and more hollowed out towns across the industrial heartland, we want a tax code that leads to more American jobs and more workers joining the middle class,” Senator Brown said. “This plan will fix our broken system that rewards companies for shipping jobs overseas, undo the damage from the Republican corporate tax handout of 2017, and allow us to invest in our greatest assets – American workers and our kids.”
“With today’s discussion draft release, we are taking another important next step toward reforming our international tax policy. We need a system that incentivizes companies to make investments here in the U.S. in cutting-edge R&D, domestic production, and training American workers for thehigh-quality jobs of the future,” Senator Warner said. “The 2017 tax law unfortunately provided incentives that do the opposite, encouraging companies to offshore operations and jobs. We need to reverse that, and to provide sufficient revenue for long-overdue investments in our economy and our workforce to meet the competitive challenges of the 21st century.”
To overhaul GILTI, the senators propose repealing the tax exemption for foreign factories that incentivizes shipping jobs overseas, raising the GILTI rate, and moving to a country-by-country system that prevents multinational corporations from shielding income in tax havens from U.S. tax. The senators’ proposed “high-tax exclusion” is a simpler country-by-country approach, excluding income from countries where it is already taxed at a higher rate than GILTI, with the remaining low-tax countries subject to GILTI taxation. Lastly, the treatment of research and development expenses and headquarters’ costs would be adjusted, to prevent companies from paying higher taxes under GILTI when they invest in the United States.
To overhaul FDII, the senators similarly propose ending the built-in incentive to offshore factories and other assets, and equalizing the FDII and GILTI rates. The offshoring incentive will be replaced with a new provision to reward current year innovation-spurring activities in the United States, like research and development.
To overhaul BEAT, the senators propose restoring the full value of tax credits for domestic investment. To pay for this change, the proposal creates a higher, second tax bracket for income associated with base erosion; this raises revenue from the biggest base eroders, and uses that revenue to support companies investing in the United States.
The best way to address timing issues in GILTI and to integrate concepts from the Biden administration’s SHIELD proposal are still to be determined. Additional international tax policies are also under consideration, and the discussion draft is a starting point for conversations in the Democratic caucus on how to reform the international tax system to meet shared goals.
A web version of this release is here.