Future of Taxes and Multinational Corporations

Countries around the globe are trying to stem the “rush to the bottom,” which has multinational companies moving their corporate headquarters to lower their tax bills. Bermuda, the Cayman Islands, and Ireland are popular destinations for corporations looking for tax havens. According to the International Monetary Fund, the result of this tax strategy is a loss of worldwide government revenues estimated between $500 and $600 billion annually.
Businesses shuffling their headquarters between countries is not new. Over the last 30 years, it has made headlines, but the economic effects of COVID-19 have made it a front-page issue. With so many individuals and small businesses struggling economically, the public’s demand for fairer taxation has become part of the debate.International tax
A significant driver of the international tax debate is the way digital services are taxed, especially services provided by Facebook, Amazon, and Google. The existing laws never anticipated that data would be a revenue-creating behemoth or most of the global tech giants would be U.S. companies.
President Biden’s proposed Made in America Tax Plan seeks to ensure that corporations, including the digital giants, pay their fair share of taxes.
Some of the main features of the Biden plan affecting multinational companies include:

  • Enacting country-by-country minimum tax rates on offshore assets. Currently, companies headquartered abroad deduct 50% of their foreign income from their tax burden and may claim a tax credit of 80% of their foreign tax payments, no matter how large or small the tax payments. A company that claims an address in a country with no corporate tax at all can halve its tax burden. Adding more tax brackets would level the playing field.
  • Modifying or eliminating the Tax Cuts and Jobs Act (TCJA) provisions incentivizing the offshoring of assets. The proposed changes would eliminate the Foreign-Derived Intangible Income (FDII) tax incentives and replace the Base Erosion and Anti-Abuse Tax (BEAT) with the Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) tax.

Biden is seeking international buy-in for a global minimum corporate tax. Currently, the OECD is overseeing a 140-nation effort to develop a framework for a new global minimum tax that would allow the countries where the sales are being made, rather than the one where the corporate headquarters are located, to get a larger share of a corporation’s taxes. This is intended to prevent corporations from shifting profits from high-tax jurisdictions to lower-tax ones. Individual countries would rely on the OECD framework as they form their own tax legislation.
The OECD’s goal is to have its plan ready by July 2021. No one knows what the proposed tax rate will be or whether it will be adopted by the participating countries. The hope is that it will be the beginning of international cooperation for the taxation of multinational corporations.
The stakes are high for multinational corporations operating in the United States. If these changes are enacted, there would be a big change in how multinationals report profits and revenue, how they are taxed, and what their compliance requirements will be.
Contact Sara B. Nance, CPA or Stephen J. Rodis, CPA about international tax laws and regulations.

Need Guidance and Help?
If you need advice, give us a call and we will be happy to discuss your situation.