We’re continuing to break down tax implications from Biden’s Build Back Better Budget, moving from business provisions to international provisions and later individual implications. For the most part, the proposed provisions relating to international taxation were able to stay intact, even as the Build Back Better Budget was slashed. Let’s dive right in!

FDII & GILTI

Currently, a domestic corporation receives a 37.5% deduction on foreign-derived intangible income (FDII) and a 50% deduction for its global intangible low-taxed income (GILTI). Both of these policies were set to be reduced to 21.875% and 37.5% respectively, for the tax years starting in 2025, however, under the proposed legislation this timetable would be accelerated to the tax years following 2021.
In addition to this, the current law on excess deductions will be changing. Currently, if the sum of FDII and GILTI deductions exceeds the corporation’s taxable income, the deduction for the total is reduced by the amount of the excess, and the reduction is not included in the calculation of the corporation’s net operating loss. The new proposal eliminates the limitation and allows for the deduction to be used in calculating net operating losses.


Controlled Foreign Corporation One-Month Deferral

Currently controlled foreign corporations (CFCs) are able to elect to use a tax year beginning one month before the tax year of the majority of its U.S. shareholder. The proposed legislation eliminates this election for the tax year following November 30th, 2021.

Foreign Tax Credit

The proposed legislation seeks to apply a limitation on the foreign tax credit on a country-to-country basis. Preventing domestic corporations from using excess taxes paid to high-tax countries to reduce U.S. tax liability on income earned in lower-tax countries. This would also apply not only to regular taxes, but also oil and gas taxes.

Foreign Base Company Income

For purposes of calculating income, foreign base company sales income and foreign base company services income are proposed to be included in the income of CFC shareholders only if the resident is a taxable unit that is a tax resident of the US.

BEAT Modifications

The proposed bill will modify the application of the base erosion and anti-abuse tax (BEAT) for tax years beginning after 2023. Currently, there is a rule limiting the application of BEAT to taxpayers for which base erosion tax benefits from base erosion payments exceed 3% of total deductions. This rule is being eliminated and as a result, any corporate taxpayer with gross receipts over $500 million would be subject to BEAT.

Many of the changes to these provisions are very complex and force companies to edit their tax plan. For a better understanding feel free to give us a call at 516-541-6549. And don’t forget to visit our website for more news updates!

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