The U.S. Treasury recently proposed a new regulation to help the United States do its part in enforcing a 15% global corporate minimum tax. 136 countries agreed to this tax in 2021. The new proposal is called the Undertaxed Profits Rule, and it is a part of President Biden’s 2023 fiscal budget. It would replace the current U.S. Base Erosion Anti-Abuse Tax (BEAT) and will strengthen the United States’ ability to ensure that multinational corporations pay an effective tax rate of at least 15%, according to Treasury budget documents.
The initial global minimum tax deal was negotiated through the Organization for Economic Cooperation and Development (OECD). Its goal is to end a “downward competitive spiral of corporate rates and an erosion of government revenues to tax-haven countries,” according to Reuters.
According to the proposed Undertaxed Profits Rule, the United States will crack down on U.S. subsidiaries of foreign companies using U.S. deductions and credits to lower their effective tax rate below 15%. The Undertaxed Profits Rule features a domestic tax designed to capture the difference between what these U.S. subsidiaries pay after deductions and credits and the 15% tax rate. The new rule would apply to companies with global revenues of $850 million or more.
The Treasury is poised to work with Congress to pass this legislation. The initial legislation from the Biden administration aimed at implementing a global minimum tax was a part of the Build Back Better Act, which stalled in Congress at the end of 2021. The Treasury does not want to see the government’s efforts in this arena fall short again.
Biden’s budget also proposes raising the U.S. corporate tax rate from 21% to 28% and increasing the U.S. overseas minimum tax rate from 10.5% to 20%. The budget also proposes higher taxes on wealthy individuals.
Manal Corwin, head of KPMG’s Washington national tax practice and former U.S. Treasury tax official, believes that the Biden administration is very committed to passing this proposed tax legislation. Corwin believes that the message that the Biden budget is sending is important because it shows that it is following a “global architecture.”