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Tax Reforms A-Go-Go

Kitty Miv, Editor
16 April, 2021

Whilst in certain areas, tax policy seems to have been in something of a COVID-necessitated holding pattern these past months, in others, the wheels have been busily turning. In this week's column, we take a look at recently announced major tax plans, starting with the United States, where President Biden fleshed out his forthcoming tax direction for businesses, with the publication of "The Made in America Tax Plan".

The report, released by the US Treasury, provided in-depth detail on the announcements made by Biden's Administration at the beginning of April and the objectives behind the policies.

As well as hiking the rate of corporate tax to 28 percent from 21 percent, Biden's Administration has announced the following changes to measures introduced by the former administration in 2017:

  • The rate of tax on global intangible low-taxed income (GILTI) will be doubled to 21 percent and it will be calculated on a per-country basis;
  • Tax on GILTI will apply from the first cent, rather than on the portion of income that exceeds a notional 10 percent rate of return on an investment in a foreign country;
  • The Administration has said it intends to "repeal the tax break for 'Foreign Derived Intangible Income'; and
  • It also aims to replace "ineffective provisions" from the 2017 law to stop earnings stripping by foreign corporations.

The report additionally backs current talks on a global minimum corporate tax rate, a stance which was subsequently reiterated. Further, the Administration has said it will introduce a 15 percent minimum tax on large corporations' book income, with the new report stating the levy will be targeted at companies that "report high profits but have little taxable income."

However, the report discloses that, in parallel with these efforts, the US intends to repeal and replace the Base Erosion and Anti-Abuse Tax (BEAT), in addition to strengthening anti-inversion rules, blocking companies from writing off expenses that come from offshoring jobs, and eliminating "tax preferences" for fossil fuels.

Discussing funding sources for his previously announced American Jobs Plan, though, President Biden ruled out increases to the tax burden for all but the country's highest-income taxpayers.

As if that wasn't enough to be getting on with for tax watchers, the Turkish authorities decided to get in on the action, unveiling proposals to hike the country's corporate tax rate to 25 percent.

Draft legislation has been tabled to temporarily increase the corporate tax rate to 25 percent this fiscal year, before reducing it to 23 percent in 2022. The current rate is 20 percent but had been increased temporarily to 22 percent during fiscal years 2018, 2019, and 2020.

In conclusion, we return to the US, where the Government is reportedly seeking to refocus the international tax work of the OECD, focused on the taxation of the digitalized economy, to target only the world's very largest multinational companies.

The Financial Times has released a report on the plans, after obtaining documents that set out the US Government's proposals. Those proposals were put forward for consideration to the BEPS Inclusive Framework countries.

According to the report, the US is proposing that the OECD's current work on new international tax rules be focused on hiking the tax paid by the world's largest companies, regardless of how they generate their revenue. The OECD is currently proposing that the tax apply to a larger number of "consumer-facing" businesses that interact with their consumers digitally. The FT said, under the US plans, around 100 of the largest companies globally would be obligated to pay tax under the new rules, and to market economies.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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