Author: Charles F. Schultz III
On Friday May 28th, President Biden’s administration released its proposed budget for fiscal year 2022. As part of the release, the administration also published the General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals (otherwise known as the “Green Book”). This FGMK article provides an overview of the key tax provisions included therein, as well as thoughts and recommendations as taxpayers consider potentially planning opportunities moving forward.
The General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals (otherwise known as the “Green Book”) provides greater detail on the Administration’s proposed modifications to current tax law. Much of these proposed modifications are consistent with earlier proposals found in the Made in America Tax Plan, American Jobs Plan, and the American Families Plan. However, this proposal offers key difference from provisions offered in prior proposals. Provided below are the highlights of this Plan.
Corporate Tax Proposals
The corporate tax changes will reduce some of the tax benefits that were gained under Tax Cuts and Jobs Act of 2017. The following are among such changes:
- Increase of the statutory corporate rate from 21 percent to 28 percent;
- Creation of a new 15 percent alternative minimum tax on global book income of certain large corporations (i.e., corporations with global income exceeding $2 billion); and
- Refocus of the nation’s commitment to clean energy by dramatically limiting the tax benefits available to coal and gas industry, including:
- Reforming taxation of foreign fossil fuel income;
- Repealing fossil fuel subsidies; and
- Reinstating Superfund taxes.
International Tax Proposals
It appears that the Proposal attempts to “level the playing field” to prevent any advantage that could be available for either foreign or multi-national corporations. These changes are very comprehensive in nature and include the following:
- Reduce the deduction under IRC Section 250 for the computation of “global intangible low-taxed income” (“GILTI”) from 50 percent to 25 percent (effectively increasing GILTI from 10.5 percent to 21 percent if the corporate tax rate is increased to 28 percent);
- Eliminate the “qualified business asset investment” (“QBAI”) exemption, and impose a jurisdiction-by-jurisdiction calculations;
- Repeal the deduction for “foreign-derived intangible income” (“FDII”);
- Expand the application of IRC Section 265 to disallow deductions attributable to income exempt from tax or taxed at a preferred rate when calculating the foreign tax credit limitation;
- Replace the “base erosion anti-abuse tax” (“BEAT”) with a new “Stopping Harmful Inversions and Ending Low-Tax Developments” (“SHIELD”) rule which would deny U.S. tax deductions for payments made to foreign related parties subject to a “low effective tax rate” that is below a designated minimum tax rate (projected to be at 21 percent);
- Limit the ability of domestic corporations to expatriate by tightening the anti-inversion rules;
- Restrict the deduction of interest by a financial reporting group attributable to disproportionate U.S. borrowing (projected to be at 21 percent); and
- Deny certain deductions related to offshoring jobs.
