The release of the “Green Book: General Explanations of the Administration’s Fiscal 2024 Revenue Proposals” from March 9, 2023, is stirring up the international tax space, specifically regarding global intangible low-taxed income (GILTI). This revised legislation is yet another attempt to bring the U.S. more in line with the OECD’s Pillar Two Global Minimum Tax Rules. Below is a summary of the Green Book’s international provisions.
GILTI Updates:
- As the U.S. corporate tax rate would increase from 21% to 28%, the GILTI Section 250 deduction would be reduced from 50% to 25% resulting in a change in minimum tax on foreign income from its current 10.5% to 21%. The proposed GILTI tax is higher than the global minimum tax of 15% which nearly 140 countries have already agreed to.
- GILTI losses would be permitted to be carried forward. Currently, net tested losses are not permitted for carryforward purposes, they are simply lost if not utilized.
- The Global Qualified Business Asset Investment (QBAI) carve-out would be fully eliminated. Currently, the QBAI carve-out is 10%. However, OECD Pillar Two contains an 8% carve-out that tapers down to 5% over a 10-year period.
- GILTI calculations would be on a country-by-country basis, which is a proposal we have seen before. Effectively, this prohibits the netting of high and low tax jurisdictions.
- The 20% foreign tax haircut would be reduced to 5% allowing for the use of 95% of foreign taxes paid versus the current 80% allowance. The Green Book calls for excess GILTI foreign tax credits to be carried forward 10 years with no ability for carryback. Currently, there is no carryforward of unused foreign tax credits.
- The proposed limit of the IRC Section245A deduction to only dividends received from CFCs has not been revised from previous proposals.
What Do These Changes Mean?
- Global companies must continue to monitor these updates to stay competitive – adjustments to global structures may need to be considered to take advantage of same-country netting.
- The favorable changes for carry forward of unused net tested losses and unused GILTI foreign tax credits provide for additional planning opportunities for those taxpayers subject to GILTI as it provides potential offsets to subsequent-year income which is not currently available.
- Tax planning will continue to be essential to potentially mitigating the impact of country-by-country reporting and effectively using foreign taxes.
If you have any questions or concerns about these GILTI updates, or need assistance with your international tax needs, reach out to our team today.
