Will the U.S. Fully Implement OECD Tax?

The Biden administration wanted to enact the “Build Back Better Act” (BBB). The goal was to be OECD-compliant on its 15% global corporate minimum tax and strengthen GILTI.

 In November 2021, the House passed BBB.

The bill contained two major corporate tax increases: 

• A new 15% corporate alternative minimum tax (CMT) for corporations with annual profits - domestic and foreign earnings - of more than US $1 billion. CMT is not computed on a country-by-country basis; thus, it is distinct from the OECD minimum tax; and

• Changes to the GILTI rule so to be OECD-compliant, with an increase from 10.5 to 15% with rules to be applied on a country-by-country basis.

The estimated additional tax revenue under BBB was substantial:

·      Over US $300 billion within ten years from the CMT; and

·      Approximately another US $300 billion from GILTI.

BBB never came to a vote in the Senate until last week. 

On July 27, a deal was reached to scale down BBB – the “Inflation Reduction Act of 2022” (IRA).

IRA includes the 15% CMT but does not include any GILTI changes. 

Senators Manchin and Schumer pondered not putting US corporations at a competitive disadvantage and damage the US economy. 

Credits: Financial Post on July 26, 2022. Extracts from Allan Lanthier article; Subparagraph 95(2)(a)(ii) of the Income Tax Act.