The direction of US international tax policy in the next congress and new Administration will be determined largely by the outcome of the 2020 federal elections. Former Vice President Joe Biden is projected to have secured more than the required 270 electoral votes to have won the presidency. This Insight outlines business tax changes that Biden proposed during his campaign as well as ongoing global tax talks.
The House of Representatives will remain in Democratic control, albeit with a narrower majority for the Democrats. Control of the Senate will depend on the results of the January 5th runoff elections for two seats in Georgia. Currently, Republicans are projected to hold 50 seats and the Democrats 48 in the next Senate. If Democrats win both Georgia seats, the Senate would be tied 50-50, making the Vice President-elect Kamala Harris the tie-breaking vote if all 50 Democrats vote together on a bill.
Enacting major tax legislation in the next Congress faces challenges, including the status of the pandemic, the state of the economy, and the makeup of the new Treasury Department. Particularly if Republicans maintain control of the Senate, enactment of sweeping tax changes as proposed by President-elect Biden during the campaign, such as a 28% corporate tax rate, seems uncertain in the next two years. However, companies should take into account the potential tax changes noted below in developing their tax strategies under a Biden Administration.
Tax proposals that can attract bipartisan support could achieve passage. Also, a Biden Administration appears likely to signal a return to multilateralism and revitalized participation in the Organisation for Economic Co-operation and Development (OECD), World Trade Organization (WTO), and World Health Organization (WHO).
While significant reforms to the GILTI regime, implementation of a minimum tax on global book income, or increasing the corporate tax rate to 28% may seem unlikely in the near term, companies should assess opportunities to effectively manage tax costs. President-elect Biden’s comprehensive business tax proposals may be tabled for two years and revisited after the 2022 election. Changes in the nearterm still are expected, however, in the global tax environment (i.e, BEPS 2.0) and the US regulatory environment. MNCs should model strategies to reduce taxable income against its overall tax posture in seeking to avoid an increase in other tax liabilities.