As part of their consideration of tax proposals to include in the budget reconciliation process, on Aug. 25, Democrats on the Senate Finance Committee released a draft bill that expands on the framework released in April to overhaul the international taxation provisions in the Tax Cuts and Jobs Act of 2017 (TCJA). Unlike the proposals in the “General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals” (Green Book), which would roll back most of the TCJA’s international tax provisions, the Senate bill retains the basic architecture of the TCJA while “ensuring mega-corporations pay their fair share” and allowing for the simplification of taxpayer compliance and administration.
Following is a comparison of the key international provisions included in the Senate bill and the Green Book.
Senate bill |
Green Book |
Global inclusion of low-taxed income (GILTI) | Global intangible low-taxed income (GILTI) |
Repeal exemption for 10% deemed return on qualified business asset investment. | Repeal exemption for 10% deemed return on qualified business asset investment. |
Require GILTI to be computed on a country-by-country basis. | Require GILTI to be computed on a country-by-country basis. |
Mandate application of country-by-country high-tax exclusion.
|
Eliminate the high-tax exclusion from tested income. |
Commit to a foreign tax credit (FTC) haircut between 0% and 20%. | No provision. |
No provision. |
Expand tested income to include previously excluded foreign oil and gas extraction income and foreign oil-related income.
|
Disallowance under Section 265 |
Disallowance under Section 265 |
No provision. |
Disallow deductions for expenses allocable to dividends eligible for the foreign-dividends-received deduction or to GILTI inclusions to the extent of the deduction under Section 250.
|
Subpart F | Subpart F |
Modify Subpart F as follows:
|
Eliminate the high-tax exemption with respect to Subpart F income. |
Foreign-derived innovation income (FDII) | Foreign-derived intangible income (FDII) |
Reduce the Section 250 deduction by a yet-to-be-determined amount for GILTI and then equalize for FDII purposes. |
Eliminate the Section 250 deduction for foreign-derived intangible income. |
Change focus to “innovation income,” which is the lesser of either:
|
|
Base erosion and anti-abuse tax (BEAT) | Base erosion and anti-abuse tax (BEAT) |
Modify BEAT as follows:
|
Replace BEAT with a new SHIELD rule focused on disallowing deductions for regular tax rather than an alternative tax. |
Other modifications | Other modifications |
Foreign branches (FB):
|
No provision. |
FTC limitation:
|
No provision. |
No provision. |
FTC: Treat the sale of a foreign hybrid as a stock sale for purposes of determining source and character of income and attendant FTC limitation. |