No Tax Breaks for Outsourcing Act Eliminates Benefits to Corporations (Part 1)

On March 11, 2021, U.S. Senators Chris Van Hollen (D-MD), Sheldon Whitehouse (D-RI) and Dick Durbin (D-IL) and Congressman Lloyd Doggett (D-TX), joined by Senators Kirsten Gillibrand (D-NY), Jeff Merkley (D-OR), Elizabeth Warren (D-MA), and Jack Reed (D-RI) and over 100 House members, introduced the No Tax Breaks for Outsourcing Act.

This bill aims to eliminate benefits provided to multinational corporations that provided under the Tax Cuts and Jobs Act of 2017.

• This bill proposes to change the current inclusion of GILTI to an inclusion of net CFC tested income. This would remove the Net DTIR (QBAI, tested interest) item from reducing tested income in the GILTI computation. Correspondingly, Section 951A(b) and (d) for defining Global intangible low taxed income and QBAI are proposed to be removed from the code.
• Section 250, which provides for a deduction for FDII and a 50% deduction of GILTI income for Corporations, is proposed to be repealed.
• The proposed rules also provide that any income excluded from foreign base company income (Subpart F) under the high-taxed exception as well as any foreign oil and gas extraction income will be included into tested income for GILTI purposes.
• In addition, the proposed rules remove the 20% haircut on foreign taxes deemed paid on tested income.
• The high-taxed exception is proposed to be removed for foreign base company income and insurance income.
• The Bill proposes to repeal the 1-year carryback of foreign tax credits by amending Section 904(c) as well as applying a country-by -country limitation on the foreign tax credit based on “taxable units” (g., foreign branches, CFCs, and other passthrough entities).
• A new Section 163(n) is proposed to limit interest deductions by domestic corporations in an “International Financial Reporting Group” (“IFRG”). A IFRG is defined as any group of entities which includes at least one foreign corporation engaged in a trade or business in the United States or at least one domestic corporation and one foreign corporation that prepares consolidated financial statements and reports average aggregate annual gross receipts for the current year and prior 2 years of over $100M. This new rule is aimed at disallowing the interest expenses for U.S. subsidiaries of multinational corporations where a disproportionate share of the IFRG’s debt is located in the United States.
• The Bill also proposed to treat foreign corporations worth $50M or more that are managed and controlled within the U.S. as U.S. entities.
• The Bill also strengthens the inversion rules by modifying the definition of “expatriated entity” where certain mergers between U.S. companies and smaller foreign companies to be U.S. taxpayers, regardless of where the new company is headquartered if the historic shareholders of the U.S. company continue to own more than 50% of the new entity or if the U.S. entity is managed and controlled in the U.S. and has significant business in the U.S.

Stay tuned for more updates from our International tax as this legislation is passed it may change and provide further guidance.

Author: Calvin Yung, JD, LLM | [email protected]