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01/10/2023. 21:33:25


Por y para profesionales del Derecho

“Wind of change” by Biden

Asesor fiscal internacional

Joe Biden

Coming back from this long well deserved Easter “puente” with my family, and wondering what is interesting to write and comment about today, when I saw few articles about the first 100 days of the new American president, Joe Biden. So, came to me the idea to change territory and scratch further about what are his tax movements during the 1st Quarter of 2021.

After a full pandemic year that kept the world breathless, a new “wind of change” is blowing on the White House with new hopes and, of course, high promising economic expectations.

The Biden administration introduced, in January 2021, the American Rescue Plan of 2021, which became Public Law on March 11, 2021. According to the U.S. Department of the Treasury, this plan would provide immediate and direct relief to families and workers affected by Covid-19 crisis. This first plan consists of incentive and direct help payments, such as child tax credits, support for low-income families, and more.

More investments and more measures were announced on March 31, 2021 by the president of U.S.A. He unveiled his plan to boost the post-Covid American economy, the American Jobs Plan, which consists primarily of various economic measures:

  • Working on infrastructure, to Fix highways, rebuild bridges, upgrade ports, airports and transit systems,
  • Delivering clean drinking water, upgrading the electric grid and provide a more affordable broadband
  • Build and preserve millions of homes and commercial buildings, modernize schools and childcare facilities, and upgrade veterans’ hospitals and federal buildings
  • Creating jobs and raising wages and benefits for essential home caregiver and care workers
  • Investment in R&D, revitalize manufacturing, secure U.S. supply chains, and train Americans for the jobs of the future
  • Create good-quality jobs that pay prevailing wages in safe and healthy workplaces while ensuring workers have a free and fair choice to organize, join a union, and bargain collectively with their employers.

All of the above-mentioned measures aim to create jobs and focus on the middle-class people, as he said in his pitch “because wall street didn’t build this country. You! Great middle-class built this country”.

Part of this plan, additional tax proposals were presented. The White House Fact Sheet, clearly states,   “Alongside his American Jobs Plan, President Biden is releasing a Made in America Tax Plan to make sure corporations pay their fair share in taxes and encourage job creation at home.”

Made in America Tax Plan

The Fact Sheet mentions that the President proposes to fix the corporate tax code, in a way to stop unfair and wasteful profit shifting to tax, by applying its incentives. The new proposed measures are:

  • Set the Corporate Tax Rate at 28 percent
  • Discourage Offshoring by Strengthening the Global Minimum Tax for U.S. Multinational Corporations.
  • End the Race to the Bottom Around the World
  • Prevent U.S. Corporations from inverting or claiming tax havens as their residence.
  • Deny Companies Expense Deductions for Offshoring Jobs and Credit Expenses for Onshoring.
  • Eliminate a Loophole for Intellectual Property that Encourages Offshoring Jobs and Invest in Effective R&D Incentives.
  • Enact A Minimum Tax on Large Corporations’ Book Income. 
  • Eliminate Tax Preferences for Fossil Fuels and Make Sure Polluting Industries Pay for Environmental Clean Up
  • Ramping Up Enforcement Against Corporations.

After reading these measures, I thought, “I am starting to like this guy”, maybe because said measures are too idealistic. Somehow, could it be that the Biden Administration is a little too ambitious? It is undeniable that he is making a clear-cut and a huge turn from his predecessor, who rewrote the tax code in 2017 profiting to corporation and wealthy American taxpayers, as expressed by some tax practitioners. For the purpose of this article, I would like to stop on 3 major points.

Corporate tax increase to 28%

The plan to increase the corporate tax rate to 28% is already being criticized and will be opposed by several advocacy groups from across the political spectrum, preparing a war against his plan. According to the American Tax Foundation, this may lead to one of the highest corporation tax rates by an OECD member, when combined to the state and local taxes.

New global intangible low taxed income (“GILTI”) Regime:

Furthermore, these proposals will have a great impact on GILTI regime that was enacted as part of the Tax Cuts and Jobs Act. They would generally tax foreign source income of U.S. multinational corporations at a significantly higher rate and make offshore investments much less attractive than under current regime.

With the new measures, the effective tax rate on GILTI for corporate taxpayers would increase from 10.5% to 21%, GILTI would be required to be determined on a country-by-country basis and the 10% exclusion Qualified Business Asset Investment (“QBAI”) would be removed.

Global agreement on a strong minimum tax through multilateral negotiations:

Biden Administration would seek a global agreement on a strong minimum tax through multilateral negotiations with other countries, and would revoke and replace the “base erosion and anti-abuse tax” (“BEAT”). The proposition is to deny deduction to U.S. multinationals that make payments to countries in jurisdictions that have not adopted the minimum tax. This provision would make the US commitment to a global minimum tax clear. 

As the process moves forward over the coming weeks and months, the Biden Administration may announce further tax proposals. For example, for now, the proposals do not include increase on income tax for individuals. However, it is known that Biden always expressed that he wants to raise tax rates for Americans that make a certain amount of money in this country and to propose a wealth tax. Hence, it would not be a surprise that the administration may release more proposals. Finally, Congress could add to and modify proposals as it considers legislation implementing the recovery plan.

Then, maybe after all, despite the Biden Administration, Congress would have to mark the “Magic of the moment” to make the “Wind of change” blow strong and in a different direction.

The opinion afore expressed is exclusive of the author and cannot be attributed or related to any person of his personal or professional surroundings. / La opinión expresada en este post es exclusiva de su autor, y en modo alguno puede imputarse o atribuirse a ninguna persona o entidad de su entorno profesional.

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