October 2021 / United States

The US Treasury Department (Treasury) has announced that the United States, Austria, France, Italy, Spain and the United Kingdom reached an agreement on the transition from existing digital services taxes (DSTs) to the new multilateral solution that was agreed on 8 October 2021 by 136 countries of the OECD-G20 Inclusive Framework (IF).

The Treasury made the announcement in its Press Release, dated 21 October 2021.

The Press Release states that the agreement represents a pragmatic compromise that helps ensure that the named countries can focus their collective efforts on the successful implementation of the IF's historic agreement on a new multilateral tax regime and allows for the termination of trade measures adopted in response to DSTs.

The Press Release further states that, overall, this political agreement carefully balances the perspectives of several countries and is yet further demonstration of their commitment to working together to reach consensus, and to deliver far-reaching multilateral reforms that help support national economies and public finances.

According to the Press Release, the named countries will continue to discuss this matter through constructive dialogue.

The Monthly Budget Review of September 2021, issued by the US Congressional Budget Office (CBO), showed a major increase in corporate tax revenues in the year 2021.

Preliminarily, corporate tax revenues in 2021 increased to USD 370 billion from USD 212 billion in 2020. This 74.8% growth rate resulted in part from higher corporate profits earned in 2021.

2021's tax collection is also approximately 24.5% higher than the USD 297 billion collected in 2017. This is significant because 2017 was the year prior to the enactment of the corporate tax rate reductions under President Trump's Tax Cut and Jobs Act (TCJA). In analysing the corporate tax revenues as a percentage of the US gross domestic product (GDP) metric in 2017, it equated to 1.5%, versus today's GDP percentage of 1.63% (based on the estimated GDP of USD 22.74 trillion, provided by the US Bureau of Economic Analysis (BEA)).

This new data will spur more debate in the days to come as the United States grapples with whether to increase corporate tax rates to raise revenues to finance President Joe Biden's Infrastructure Investment and Jobs Act. Under the American Jobs Plan, corporate tax rates would increase to 28%.

Note 1: The CBO is a non-partisan agency that provides objective analyses of budgetary and economic issues in supporting the Congressional budget process.

Note 2: The BEA, which is an agency of the US Department of Commerce, produces economic statistical reports that enable the government, business decision-makers, researchers and the public to understand the performance of the US economy.

The US President Joe Biden has released the Build Back Better Framework, which includes his updated tax reform plans. The White House issued a statement dated 28 October 2021 to announce the Build Back Better Framework.

The Build Back Better Framework is intended to guide the drafting of legislative language for the Build Back Better Act. According to the White House statement, President Biden is confident that the framework can pass both chambers of the US Congress, and he looks forward to signing it into law.

Specifically, the Build Back Better Framework includes the following tax reform plans:

• imposing a 15% minimum tax on the corporate profits that large corporations (those with over USD 1 billion in profits) report to shareholders;
• imposing a 1% surcharge on corporate stock buyback;
• adopting a 15% global minimum tax on a country-by-country basis;
• ensuring other countries abide by the agreement on the global minimum tax by imposing a penalty rate on any foreign corporations based in non-compliant countries (i.e. the base erosion and anti-abuse tax or BEAT);
• imposing a surtax on the income of multi-millionaires and billionaires at the rate of 5% on income above USD 10 million and additional 3% on income above USD 25 million;
• closing the Medicare self-employment tax loophole by strengthening the net investment income tax (NIIT) for those making over USD 400,000;
• continuing the limitation on excess business losses;
• extending the expanded child tax credit (CTC) for 2022 to provide USD 300 per month per child under 6 years and USD 250 per month per child aged 6 to 17 years;
• extending the expanded earned income tax credit (EITC) for childless workers for 2022;
• extending the expanded Affordable Care Act (ACA) premium tax credits through 2025;
• providing 10-year expanded tax credits for utility-scale and residential clean energy, transmission and storage, clean passenger and commercial vehicles, and clean energy manufacturing; and
• making transformation investments in the US Internal Revenue Service (IRS) by:
  • hiring enforcement agents who are trained to pursue wealthy evaders;
  • modernizing outdated IRS technology; and
  • investing in taxpayer service.

The framework aims to set the United States on course to meet its climate goals, create millions of good-paying jobs, enable more Americans to join and remain in the labor force, and grow the US economy from the bottom up and the middle out.

On January 1st 2022, the HTS will be updated with recommendations made by the United States International Trade Commission. These recommendations have been open for comment to federal agencies and the public for the last two years in order to ensure proper classification of goods. There are 351 total amendments being made to the HTS, including new subheadings for a large range of products including electronic vaporizers, hybrid truck engines, blanched peanuts, and cultural artifacts.

The full list of recommendations going into effect can be found here