The US Treasury Department (Treasury) has issued a report describing President Biden's US tax reform plan, referred to as the Made in American Tax Plan. The report is focused on corporate tax reform and clean energy incentives. The Treasury also issued an accompanying Press Release, dated 7 April 2021.
The Treasury's report outlines the following tax reform proposals:
- increasing the corporate tax rate from 21% to 28%;
- strengthening the global minimum tax, i.e. GILTI (global intangible low-taxed income) by:
- eliminating the tax exemption for the first 10% return on foreign tangible assets (i.e. the QBAI—qualified business asset investment);
- calculating the GILTI on a per-country basis; and
- increasing the GILTI rate to 21% (i.e. two thirds of the proposed new 28% corporate tax rate, as opposed to the current one-half ratio, which has resulted in the 10.5% GILTI rate);
- replacing the BEAT (base erosion and anti-abuse tax) with the SHIELD (stopping harmful inversions and ending low-tax developments), which would deny multinational corporations US tax deductions for payments made to related parties that are subject to a low effective rate of tax, i.e. a tax rate equal to:
- the rate agreed upon in the multilateral agreement; or
- the new GILTI rate (i.e. 21%) if the SHIELD is in effect before such an agreement has been reached;
- reinforcing the anti-inversion rules by generally treating a foreign acquiring corporation as a US company:
- based on a reduced 50% continuing ownership threshold; or
- if a foreign acquiring corporation is managed and controlled in the United States;
- repealing the FDII (foreign-derived intangible income);
- imposing a minimum tax on large corporations in an amount equal to 15% of their book income (i.e. the type of income that corporations use in reporting their profits to investors) while allowing corporations credits for:
- taxes paid above the minimum book tax threshold in prior years;
- general business tax credits (including research and development (R&D), clean energy and housing tax credits); and
- foreign tax credits (FTCs);
- replacing tax preferences and subsidies for fossil fuel companies in the oil and gas industry with incentives for clean energy production, including:
- a 10-year extension of the production tax credit and investment tax credit for clean energy generation and storage, and making those credits direct pay (i.e. refundable);
- a new tax incentive for long-distance transmission lines to ensure that clean energy can be carried to cities, homes and businesses;
- an expansion of the tax incentives available for electricity storage projects;
- tax incentives for state-of-the-art carbon capture and sequestration projects;
- supports for clean energy manufacturing, including an extension of the qualifying advanced energy project credit under section 48C of the US Internal Revenue Code (IRC);
- a tax credit for sustainable aviation fuel;
- incentives to encourage people to switch to electric vehicles and efficient electric appliances; and
- a restored tax on polluters to pay for the US Environmental Protection Agency's (EPA's) clean-up costs associated with Superfund sites (i.e. toxic waste dumps); and
- increasing the enforcement budget for the US Internal Revenue Service (IRS).