In a surprising development, Senate Majority Leader Chuck Schumer, Senator Joe Manchin and President Joe Biden on 27 July announced a deal on a $740 billion reconciliation bill that includes climate/energy, health and tax components and achieves $300 billion in deficit reduction. The announcement that followed was a reversal of Senator Manchin indicating two weeks ago that he would not be able to come to agreement on any such bill. The plan is for the Senate to vote on the bill during the week of August 8.
A joint release from Senators Schumer and Manchin said the bill, the Inflation Reduction Act of 2022, includes $369.75 billion in Energy Security and Climate Change programs and “will be fully paid for by closing tax loopholes on wealthy individuals and corporations.” The agreement does not include proposed international tax changes.
The centerpiece of the package’s revenue raisers is a 15 percent minimum tax on the income large corporations report to their shareholders. The measure appears to roughly track the version passed last year by the House and would raise about $313 billion over 10 years. The bill also attempts to end the “carried interest” tax benefit that allows managers of investment funds to pay taxes on some compensation at lower capital gains rates rather than as salary.
Notably missing from the bill are President Biden’s proposed changes to the taxation of U.S.-based multinational corporations, including changes to the Global Intangible Low Taxed Income (GILTI) provisions of the 2017 Tax Cuts and Jobs Act (TCJA). Manchin’s compromise drops all of those proposals. The corporate minimum tax in the Manchin-Schumer bill is different from the 15 percent corporate tax adopted by the Organisation for Economic Co-operation and Development (OECD). As such, this is yet another setback on the road to the United States getting on board with the OECD proposals. As we have previously discussed in this blog, the OECD deal has two parts: Pillar 1 involves the reallocation of some profits from major multinationals to countries where they made their sales, while Pillar 2 brings in a global minimum corporation tax rate of 15%. The United States is one of the countries posing a challenge to reaching agreement. The U.S. Congress would need to approve changes to the current 10.5% GILTI rate by raising the rate to 15% and converting it to a country-by-country system. It is possible that these changes could be made at a future date but dropping the proposals at this time continues to call into question whether a global minimum tax agreement can ever be achieved.
Stay tuned for further developments and reach out to McGuire Sponsel’s global business services team with any questions or assistance needed in the areas of international compliance, consulting, transfer pricing or IC-DISC.
Private: Sean King, JD, LLM
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Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.
Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.