Negotiations with the US Congress on corporate tax proposals put forward by the Biden administration will be complex and may take until the autumn to conclude, according to Barbara Angus, EY global tax leader. The US political system was still getting used to the changes introduced in 2017 as part of the Trump tax reform programme, and long discussions were likely to change the shape of the Biden proposal.
The US president has proposed an increase in the main US corporate tax rate from 21 per cent to 28 per cent. He has also proposed that a rate introduced on the global income of US companies under the Trump 2017 plan – the so-called GILTI rate – be reformed, and the rate increased from 10.5 per cent to 21 per cent .
Ms Angus,who is based in Washington, said that the wafer- thin Democratic majority in Congress – relying in the Senate on the vote of the vice-president Kamala Harris – meant compromise would be needed in whatever legislative process was used.
She pointed out that the proposed GILTI rate of 21 per cent was equivalent to 75 per cent of the proposed main corporate tax rate. There would be sensitivity, she said, about the gap in whatever deal emerged and not having a system which offered an incentive for US firms to invest overseas .
However, US politicians would also have an eye to talks at the OECD, where a minimum effective global tax rate is on the agenda in a deal due to be concluded this year . If this rate was significantly lower than the GILTI rate it could put US firms at a disadvantage with local competitors in overseas markets. So US politicians would be looking in two directions as they decided on the appropriate GILTI rate, she said, which made it “ hard to predict where this will settle”.
The GILTI rate, and the rules about how this tax will work in future, are of vital interest to Ireland as they will influence the taxes paid by US companies with operations here. If the GILT rate is above the Irish corporate tax rate – now 12.5 per cent – then US firms could face the need to make top-up payments in the US.
Ms Angus said that even if there was significant progress in the House of Representatives by the summer on the Biden plan – which involves a major investment programme funded in part by higher corporate taxes – the discussions could well run on to the autumn. This was in line with the OECD talks, due to make progress by July but likely to reach a political crunch in October .
There was “some scepticism “ that the main US corporate tax rate would be set as high as 28 per cent , she said , as the US economy emerged from a pandemic downturn . Significant discussion was likely on the extent and timing of any increase.
In turn this would influence the outcome on the new GILTI rate, she said, a concept with which the US system still has limited experience . All this meant it was a “very complicated legislative environment” and the outcome remained hard to predict.