The enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) was the most significant overhaul of the federal tax code in a generation. Due in no small part to this massive achievement that NTU helped to make a reality, American businesses are hiring more workers, increasing wages, providing better benefits, and investing in new equipment to ensure the U.S. remains economically robust. Despite the continued benefits of tax reform, TCJA inadvertently included drafting errors that have actually raised taxes for some businesses, thereby dampening the pro-growth aspect of the transformative law.
As we’ve previously written, one of the provisions in need of repair had to do with the new Global Intangible Low-Taxed Income regime, also known as GILTI. Congress established GILTI as a way to target businesses that avoid corporate tax for earnings on things like patents and intellectual property. Essentially, it established a minimum (and, in conjunction with other parts of TCJA, a maximum) tax rate on earnings abroad. However, because GILTI was based on pre-TCJA foreign tax credit rules and limits, in certain cases U.S. multinational companies facing high taxes levied by other countries may have U.S. tax liability on foreign profits well in excess of the GILTI rate, or even the new 21 percent domestic corporate tax rate.
Since Congress has failed to pass a “technical corrections” package to address GILTI and other minor errors in TCJA, the Department of the Treasury has spearheaded administrative changes to account for these errors. Just this month, Treasury issued a final regulation to make the GILTI provisions apply more logically in cases of firms operating in higher-taxed nations. NTU is pleased to support the proposed regulation. We believe this fix will provide immediate relief for many businesses and enable them to share in the prosperity that tax reform is delivering. As we put it in an NTU Issue Brief sent to tax policymakers in March:
The GILTI and BEAT [Base Erosion Anti-Abuse Tax] provisions were intended to function as a minimum tax system, not a double tax scheme. It is not only unjustified, it is uncompetitive in the sense that it undermines the low-rate semi-territorial system envisioned under TCJA.
Shareholders, workers, and retirees who are depending on a strong and prosperous American private sector can be thankful too.