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Senate Democrats target GILTI reform

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Tax Hot Topics newsletter Senate Democrats outlined major proposed changes to the tax on global intangible low-tax income (GILTI) in a Senate hearing that teased a coming discussion draft on international tax reform.

Senate Finance Committee Chair Ron Wyden, D-Ore., and other tax writers are drafting an international tax reform bill that could become part of a larger infrastructure bill along with other tax increases. Democrats at the hearing attacked the 50% GILTI deduction that lowers the effective rate on GILTI income to 10.5%. They also criticized the ability of companies to average GILTI across countries. The sentiments align closely with campaign proposals from President Joe Biden, which would raise the effective GILTI rate to 21% and impose it on a country-by-country basis.

Senate Democrats also took aim at the rules for qualified business asset investment (QBAI), which allows taxpayers an exemption against GILTI for tangible assets held offshore. The rules were intended to allow GILTI to target intangible income, but Democrats argued they create a perverse incentive that encourages businesses to locate tangible assets offshore to reduce the amount of income deemed to come from intangibles. Similar rules apply for the deduction for foreign-derived intangible income (FDII), which offers companies a deduction based on foreign income from intangibles held in the Unites States. Fewer U.S. tangible assets can result in a higher calculation of income from U.S. intangibles and a larger deduction.

The Biden administration appears to be in lock step with Congress on these issues as well. Kimberly Clausing, Treasury deputy assistant secretary for tax analysis, testified at the hearing and singled out the provisions for criticism.

Contact:
Dustin Stamper
Managing Director
Washington National Tax Office
T  +1 202 861 4144

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