Build Back Better International Tax Reform

Congressional Action May Mark the Beginning of the End for Offshore Corporate Tax-Dodging

WASHINGTON, DC –The Financial Accountability and Corporate Transparency (FACT) Coalition applauds the House for passing key international tax reforms as part of the Build Back Better Act (H.R. 5376). It is essential that these reforms make it across the finish line. Build Back Better offers a first step toward meaningfully curbing tax-haven abuse, protecting American jobs, and beginning to meet the challenge set by the Biden Administration to end the international race to the bottom in corporate tax collections.

“Congress has a chance to curb multinational corporate tax avoidance, which starves the U.S. government of billions in revenues they could be using to address persistent inequities, global pandemics, and the climate crisis,” said Ian Gary, Executive Director of the FACT Coalition. “Congress must put an end to corporate tax-dodging.”

The passage of the Act follows the formal adoption by G-20 leaders of a historic deal negotiated under the Organization for Economic Cooperation and Development (OECD) to dramatically alter the way that large, multinational corporations are taxed in our increasingly digitalized and globalized global economy.

“The budget process presents a historic opportunity and, paired with the global OECD agreement, can create a fairer U.S. and global tax system,” Gary said.

Reforms in the legislation will work to reverse tax policy that currently allows highly profitable companies to cut their U.S. taxes by more than half by moving profits, factories, and jobs offshore. These changes can raise near $307 billion in new tax revenue, according to Joint Committee on Taxation and Congressional Budget Office estimates, to support critical investments in our communities and increase the competitiveness of America’s working families and local businesses. These measures can also help to ensure the successful implementation of the OECD agreement all over the world.

The framework also makes critical investments in the Internal Revenue Service to ensure that our tax laws are enforced as intended and creates a broader minimum corporate tax that will further bolster the ability to ensure that the most profitable corporations pay their fair share in building back better.

“Now is the time for reforms that equalize the taxes that multinationals pay on domestic and foreign profits, and to root out tax systems that favor the corporate tax avoidance that harms communities,” said Gary, “As exposés like the Pandora Papers have shown, we should no longer have two separate financial and tax systems – one for hardworking people who pay taxes, the other for corporations who evade them.”

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Notes to Editor:

[1] A more detailed FACT analysis of the Build Back Better international tax reforms, as well as a comparison to current law and prior proposals from the President and the Ways & Means Committee can be found here. The revised Build Back Better framework is available here. Congressional Budget Office estimates can be found here.

[2] For prior FACT analysis on the relationship between the OECD global minimum tax negotiations and needed U.S. international corporate tax reforms, see here. More detailed information on the OECD proposed framework can be found here. See here for more information on how these reforms can increase the competitiveness of the U.S. as a destination for investment to the benefit of America’s working families and small businesses.

[3] Among other key reforms, the Act:

Strengthens the current global intangible low-taxed income (GILTI) tax on multinational corporations’ foreign profits by increasing the GILTI rate to 15% and applying the GILTI (and related tax attributes) on a country-by-country basis, in line with the minimum global tax requirements in the OECD deal. The Act also decreases the incentive to invest offshore by cutting in half the exemption for a “normal return” on foreign tangible assets to 5%. These reforms are set to take effect for taxable years beginning in 2023.
Ends an inappropriate exemption to the GILTI for foreign oil and gas extractive income, in line with OECD minimum requirements. The Act also reduces the ability of international oil and gas companies to improperly categorize payments to foreign governments in exchange for a direct economic benefit to lower their U.S. tax bills.
Fortifies the base-erosion and anti-abuse tax (BEAT) – which penalizes corporate profit shifting – by increasing the applicable rate with respect to base-eroding payments or deductions from 10% in 2022 to 12.5% in 2023, 15% in 2024, and 18% thereafter. The Act also removes inappropriate exemptions to the BEAT for costs of goods sold and other base-eroding payments, and, in 2024, ends the inappropriate exception for taxpayers that make less than 3% of their total deductions or payments to foreign affiliates. Critically, the reforms exclude from base-eroding payments or deductions, payments made to affiliates that are subject to at least a 15% tax, in line with OECD requirements; however, the reforms also appropriately direct Treasury to craft regulations to address potentially abusive related-party payments within large international groups funded by base-eroding payments in the U.S.
Stops the abusive practice of taking excessive interest deductions against U.S. taxable income, including for foreign-parented entities not subject to the GILTI or BEAT, based on the use of borrowed funds to generate worldwide investment and income.