Committee Unveils Proposed Extensions and International Tax Reforms Under TCJA
As of May 14, 2023, the status of international tax provisions in the proposed extension of the 2017 Tax Cuts and Jobs Act (TCJA) remains unclear, with the focus primarily on individual tax rate extensions, standard deductions, and some corporate and business tax provisions [1][2][3][4]. However, recent developments in the form of a tax reconciliation bill offer some insights into the potential future of international tax rules.
The House Ways and Means Committee has shared a partial text for this bill, which aims to extend the TCJA and make certain other tax reforms. One of the key proposals in this bill is the permanence of the Global Intangible Low-Taxed Income (GILTI) provisions, which effectively tax profits of foreign subsidiaries. The bill proposes a minimum rate of 10.5% for GILTI, and it would repeal the 20% Foreign Tax Credit (FTC) "haircut" for GILTI taxes, allowing 100% of the foreign taxes paid on GILTI to be credited against US taxes [1][2][3].
Another significant change proposed in the bill concerns the Foreign-Derived Intangible Income (FDII), which encourages US companies to export goods and services. The bill aims to make the 37.5% deduction for FDII permanent.
The bill also addresses the Controlled Foreign Corporation (CFC) Look-Through Rule, which allows active income to maintain its active character. This rule is set to expire on Dec. 31, 2025, and is not proposed to be renewed in the current bill. Additionally, the bill seeks to eliminate the provision for downward attribution from foreign persons to US entities for determining CFC status, which has caused inadvertent income inclusions.
Moreover, the bill proposes various changes to the Foreign Tax Credit (FTC) Limitation Baskets, ensuring that foreign taxes paid on one type of income do not offset US taxes on another type of income.
The progress of this bill can be followed by contacting members of the WilmerHale Tax Department. As of May 14, the House Ways and Means Committee advanced the bill, unchanged, and Republican lawmakers hope the full bill can advance through the House by Memorial Day.
It's important to note that these developments only represent a part of the broader effort to extend key elements of the TCJA and ensure competitive tax policies for American businesses operating internationally. The full picture of international tax provisions in the proposed TCJA extension is yet to be seen, with the Base Erosion and Anti-Abuse Tax (BEAT) tax rate remaining indefinitely at 10%, as of the latest information available.
[1] Source 1 [2] Source 2 [3] Source 3 [4] Source 4
In light of the ongoing discussion about the extension of the 2017 Tax Cuts and Jobs Act (TCJA), the proposed tax reconciliation bill includes provisions for wealth management and personal finance, such as the permanence of the Global Intangible Low-Taxed Income (GILTI) provisions and the Foreign-Derived Intangible Income (FDII) deduction, aiming to provide stability in business and investing for U.S. companies operating internationally. However, the Controlled Foreign Corporation (CFC) Look-Through Rule, which affects active income, is not proposed to be renewed in the current bill, offering potential challenges in the future of wealth management and personal finance.
