The inauguration of Joe Biden as the new President of the United States began changes in tax law, which, according to many, may affect international companies operating in the United States.
As the Democratic Party retained the majority in the House of Representatives and the opposition Republican Party lost the majority in the Senate, many of the president's plans relating to tax law are likely to be implemented. A separate issue is the time limit for implementing these plans.
What can you expect? The plan presented during the presidential campaign for changes in tax law was not very detailed. The following are some likely changes.
Rates in income tax
Good news for companies in 2018 was the reduction of the highest federal tax rates by President Trump's administration of 35% to 21%. President Biden's proposal is to raise these rates to the level 28%.
For companies whose accounting profits would exceed 100,000,000 USD, a minimum tax would also be imposed, according to which companies would pay a higher rate of corporation tax, or 15% the accounting officer's income. The so-called ‘Amazon Tax’ aims at taxing large companies which, with the aid of favourable tax rules, differ from those relating to financial statements, optimise or avoid paying tax.
PROVISIONS ON GILTI
President Trump's administration introduced a new and complex system called "global intangible low income tax" (Global Intangible Low Tax Income, in short: GILTI). In an attempt to adapt the US tax system from the federal system to the territorial system, a tax rate of 10.5% from income to taxation of certain foreign subsidiaries of American corporations. Because they feared the mass transfer of American companies to foreign jurisdictions.
President Biden proposed that the tax rate be doubled to the level 21%. President Biden's plan is to calculate GILTI for individual countries in order to prevent corporations from compensating for high tax jurisdictions with low tax jurisdictions. In addition, a provision which exempts from GILTI an amount equal to 10% recognised return on the basis of the average of the adjusted foreign fixed assets basis.
Let's make America great again
According to President Biden's plan, strict rules would also be introduced to punish companies that moved jobs from the United States abroad. In addition, President Biden announced the introduction of an additional tax rate (beyond the standard corporate income tax rate), of 10% from income generated by foreign subsidiaries of American corporations whose customers are in the United States.
Can also be introduced 10% a tax credit for certain expenditure incurred in the reconstruction and revitalization of production facilities and an increase in wages in the manufacturing industry.
More environmentally-friendly initiatives may also emerge. President Biden is in favour of abolishing some corporate tax exemptions that the fossil fuel industry is benefiting from. The plan would also include restoring tax incentives for electric cars, high-energy homes and investments in solar energy, while encouraging the development of a low-carbon manufacturing sector.
Amendment of other tax rules introduced by President Trump
The Tax Cuts and Jobs Act passed at the end 2017 was a tax initiative signed by President Trump. President Biden intends to abolish many of her regulations, especially those concerning those who earn above 400,000 USD.
Foreign companies that send executives to work in the United States must be aware of many existing legislation on income taxes and social security.
Furthermore, according to President Biden's plan, capital gains from the United States may not be subject to favourable low capital gains if taxpayers achieve income exceeding one million dollars. Prior planning of immigration can become more important.
We can expect further withdrawal of the changes made by President Trump, which served to limit corporate operational regulations and promote its programme. The initiatives on climate change, immigration issues, restrictions on rental for property owners, travel restrictions and relations with foreign governments are among the most noteworthy.
In the meantime,
Pending the proposals and the strategy for the forthcoming tax changes, the issue of tax rules relating to the recovery of the economy adopted in 2020 to counter the economic effects of the pandemic Covid-19. In the case of undertakings, they concern the use and deduction of net operating losses, the higher deduction of interest costs that could otherwise be reduced, the write-down of some capital improvements according to tax depreciation, the obtaining of government aid, including decommitted loans, and the application for employee maintenance credits.
About the author: Steve Horn. Atlanta, USA
Steve is the Managing Partner of the Tax Planning Department, runs the International Department at Williams Benator & Libby, LLP, member company Russell Bedford Atlanta, and also sits on the board of Russell Bedford International.
He is the author of an update on tax planning, and previously was a member of Harcourt Brace's advisory board, CPA Internet Connection. Steve is also a frequent lecturer and guest lecturer at universities, international conferences and professional associations.