US-parented groups generally would be covered by GILTI, which (as modified by Biden’s plan) would constitute a sufficiently strong minimum tax to turn off SHIELD and In contrast to the current operation of the BEAT, SHIELD appears to target primarily non-US-parented groups.The reference to ‘effective tax rate’ indicates that SHIELD would not rely on nominal statutory rates in the recipient jurisdiction.Where exactly this rate lands is currently the subject of highly politicised negotiations amongst the Inclusive Framework countries – whilst some countries are supportive of the higher rate, others (such as the UK) currently are not and are prioritising gathering political consensus on Pillar One Any agreed OECD minimum tax rate, however, is anticipated to be lower than 21 percent but higher than the 12.5 percent that was originally in discussion. President Biden’s proposals would also increase the GILTI rate to 21 percent, though that outcome is also far from certain. The threshold rate for measuring a low ETR initially under SHIELD would be set at the rate for taxing GILTI ( Global Intangible Low-Taxed Income, the primary US system for currently taxing the earnings of offshore subsidiaries), but if the OECD BEPS 2.0 process culminates in a multilateral agreement on a global minimum tax (referred to in the OECD Blueprint in the Income Inclusion Rule (IIR)), the threshold rate would be reset to the agreed OECD minimum rate.In summary, while change seems probable, and President Biden’s proposals almost certainly represent one form of change that Congress will consider, predicting the precise contents of what might ultimately be enacted is impossible. Little insight is available as to the view of the House of Representatives on these issues – the Chairman of the House Ways and Means Committee has not, as of yet, publicly expressed any views on the matter. Rather than replacing the BEAT as the Administration proposes, that framework would instead modify the BEAT in ways that could further expand its application to inbound investors in the United States. In addition, because the legislative process is controlled by the leadership of the House of Representatives and Senate rather than the Administration, the starting point for any tax bill may not precisely reflect the Administration’s view.Īs one point of reference, on 5 April 2021, several prominent Democratic members of the Senate Finance Committee, including its Chairman, Senator Wyden, released their own framework to overhaul the US international tax system. Because it’s likely that the Democrats will be unable to afford to lose any Democratic votes in the Senate and have a very narrow margin in the House of Representatives, it’s hard to predict what will be included in final legislation. In addition to uncertainty as to the precise details of President Biden’s proposals, it’s important to bear in mind that, in contrast to the UK’s Parliamentary system, it’s far from a foregone conclusion that any of President Biden’s proposals will actually become law.
SHIELD’s prospects for enactment are highly uncertain We anticipate at least some of these questions will be answered when more details of the Administration’s proposals are released, expected later in May 2021, in the US Treasury Department’s annual report on the Administration’s revenue proposals (commonly referred to as the ‘Greenbook’). This article outlines our current understanding of the proposal and flags key open questions.
The potential for such differences was underlined by a recent US Treasury presentation to the OECD Steering Group of the Inclusive Framework on BEPS, which noted that SHIELD would be consistent only with the “general concept of the UTPR.”īiden’s plan includes few details on how SHIELD would apply. The SHIELD appears to be inspired by and partially aligned with the ‘undertaxed payments rule’ (UTPR) in the OECD’s BEPS 2.0 Pillar Two Blueprint, however there are potentially significant differences.
This proposal, referred to as SHIELD ( Stopping Harmful Inversions and Ending Low-Tax Developments), is intended to more effectively, target perceived profit shifting to low-taxed jurisdictions compared to the existing BEAT, whilst simultaneously providing a strong incentive for other nations to enact global minimum tax regimes. One aspect of Biden’s plan would replace the existing BEAT regime with a new regime that would deny corporate deductions by reference to payments to foreign related persons that are subject to a low effective tax rate (ETR), unless the income is subject to an acceptable minimum tax regime.