US businesses should brace for renewed push for a range of new or higher corporate taxes from President Biden’s administration based on the $5.8 trillion fiscal year 2023 budget. proposed this week, according to tax experts.
The budget “proposes a fairer and more efficient tax code,” according to a statement by Treasury Secretary Janet L. Yellen in a statement. Treasury statement also outlining the plan as being “more than entirely funded by tax code reforms requiring corporations and the wealthiest Americans to pay their fair share, closing loopholes, and improving tax administration”. A document, or Green Book, detailing the revenue proposals included in the budget, was released on Monday.
It comes as the $2 trillion Build Back Better Act passed the House in November is blocked in the Senate, failing to garner the unanimous support from Democratic lawmakers necessary for its passage. That legislation was a scaled-down version of Biden’s original plan to pump money into fighting climate change and helping families with paid vacations and affordable health care. If past would increase many business taxes and complicate tax complianceespecially for companies that operate globally.
New call for a rise in the corporate tax rate
There are no big surprises for companies that have been following tax issues closely in the gqueen BOh, experts say, although it includes the new “billionaire tax,” a 20% minimum tax for certain high-income earners. Yet the green Book assumes that the Build Back Better legislation as approved by the House – with the exception of the provision on the SALT ceiling – will be enacted as a baseline and also offers new ideas, according to Greg Engel, vice president of taxation at KPMG LLP.
“This approach may have been chosen to avoid weighing on delicate Congressional negotiations over what may or may not be included if a version of BBBA moves forward this year,” Engel wrote in an email.
The green paper also goes further in some tax proposals, Ken Kuykendall, PwC US Tax Leader, said in an interview. For example, the revenue plan proposes raising the overall corporate tax rate to 28% from 21%, a move that was not included in the House BBBA legislation, although Biden spoke about it at the start. of his presidency. The new proposal would be partly retract the 2017 Tax Cut and Jobs Act (TCJA) rate reduction to 21% from 35%.
For companies with global operations, the budget proposes to raise the effective rate of the Global Provision for Intangible Low-Tax Income (GILTI) to 20%, above the BBBA’s 15%. The plan also calls for the adoption of a new mechanism called the “undertaxed profits rule” as part of its framework to comply with the 15% overall minimum corporate tax.
“The advice we’re giving people is to look at what Build Back Better turns into in 2022 and see if there’s momentum to push through these tax changes,” Kuykendall said, adding that he’s somewhat unlikely but still possible that a reconciliation bill will be passed including all or part of the tax increased that were in the House bill.
“Connected to everything in the gqueen Book, if you look at Build Back Better, the administration and Congress previously couldn’t get comfortable with increases in the overall corporate rate or with the increase in the GILTI rate at 21%…so I will say there is some skepticism about the ability to adopt any of the new provisions,” he said.
Political fault lines
Corporate taxes have been a flashpoint in Congress that often, but not always, divides along party lines. The 15% global minimum tax and the administration’s emphasis on a so-called Pillar 2 multilateral agreement with other countries to set a floor for global corporate taxation drew criticism last month from Senate Republicans. But Democrats can also have a difficult to get enough votes from their own party – especially the senses. Kyrsten Sinema of Arizona and Joe Manchin of West Virginia – to raise the statutory corporate tax rate.
“At this stage, we do not know how far a tax reform will be able to pass”, Kevin M. Jacobs, Managing Director and National Tax Office Practice Leader at Alvarez & Marsal Taxand, said in an email, adding that the a higher corporate income tax rate would require the support of Sinema, which previously said it would not support tax rate increases, and Manchin, which recently said that certain non-trade aspects of the green paper were not acceptable. “Therefore, the potential increase in corporate tax rates is uncertain at best.”
Political uncertainties also complicate how companies should interpret this year’s Green Paper, he said. This is partly because it does not explicitly state that certain BBBA proposals, such as the 15% accounting income tax and the 1% excise tax on share buybacks by listed companies on the stock market, are included in the plan. The presumption is that the green paper is re-proposing the provisions, but it’s not fully transparent, Jacobs said.
With all the unknowns and increased complexity of tax compliance looming, businesses are advised to be prepared. “At KPMG, we have been – and continue to strongly encourage – our corporate clients to model these various proposals so that they can be prepared should they become law,” Engel said. “The chief financial officer and chief tax officer will navigate one of these proposed tax changes better if they plan ahead.”
Some may be slow to heed warnings. Last year, a KPMG survey of 300 senior executives found that 45% do not currently use their organization’s tax data to plan scenarios around tax policy, Engel said.