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TAX TAKE: Come Grow the Scorched Ground Green: Top 10 Questions Regarding the Treasury Department Greenbook (Part Two)

Tax Alert

Following last week's Tax Take, here is the second half of our top 10 questions regarding the impact of the recently released FY 2023 Greenbook on the tax policy landscape.

  1. Does the Greenbook have proposed tax rate increases? Interestingly, the Greenbook includes tax rate increase proposals that were rejected and not included in the House-passed version of the Build Back Better Act (BBBA), including an increase in the corporate tax rate to 28 percent, an increase in the top individual marginal tax rate, and an increase in the top capital gains/dividends tax rate. It is unclear whether the inclusion of these rate increases in the Greenbook will have any impact on future BBBA negotiations, where Senator Joe Manchin (D-WV) remains supportive of such rate increases but Senator Kyrsten Sinema's (D-AZ) firm opposition resulted in their removal from the House package.
  2. What about relief from the SALT deduction limitation cap? Although the Greenbook assumes that the revenue proposals contained in the House-passed BBBA have been enacted, it provides a specific exception for the state and local tax (SALT) deduction limitation cap relief provided in that bill. Further, the Greenbook does not itself contain any relief from the cap, calling into question the priority of such relief (at least by the Administration) in further BBBA negotiations.
  3. Does the Greenbook propose a modification to the House-passed stock buyback provision? Although it is not technically in the Greenbook, the underlying budget proposal includes a proposal "requiring executives to hold on to company shares that they receive for several years after receiving them and prohibiting them from selling shares in the years after a stock buyback." Given the lack of detail regarding the proposal (likely attributable to its unique positioning in the budget documents rather than the Greenbook), it is unclear how the proposal would interact with the proposed one percent excise tax on stock buybacks included in the House-passed BBBA.
  4. What are the proposed modifications to the international tax framework? In a nod to the recently released Pillar Two Model Rules, the Greenbook proposes to repeal the base erosion and anti-abuse tax (BEAT) and replace it with the updated undertaxed profits rule (UTPR). Treasury expects that the UTPR will be primarily imposed on domestic corporations who are members of foreign-parented multinational groups and domestic branches of foreign corporations when their ultimate parent entities are not subject to a Pillar 2 compliant income inclusion rule (IIR) regime. In addition, the Greenbook proposes a domestic minimum top-up tax, a new mechanism introduced in the Model Rules that Treasury characterizes as one that would "protect U.S. revenues from the imposition of UTPR by other countries." Left unsaid – perhaps because the baseline assumes a reformed, IIR-compliant global intangible low-taxed income (GILTI) regime – is the fact that if the GILTI modifications are not adopted before other countries adopt the Pillar 2 framework, a domestic minimum top-up tax would operate to impose a minimum tax domestically first and prevent other jurisdictions from "topping up" the tax U.S. companies pay in the event their effective tax rate falls below the requisite 15 percent. Additionally, in a nod to the increasing tide of letters critiquing the UTPR's clawing back of domestic tax incentives (not the least of which are a multitude of credits), the Greenbook notes there will be some sort of mechanism to make sure the value of those credits is not lost.
  5. Where do these proposals go from here? If past is prologue, it may take some time before any of these proposals are translated into legislative text. Then again, others have posited that some pending BBBA provisions might be modified in time to incorporate some of the concepts in the Greenbook – for example, conforming the minimum tax on book income into something that more closely resembles a Pillar 2 domestic minimum top-up tax. That sounds like a Herculean task – an even larger one than the other big task that remains: enacting legislation that would make the Greenbook's baseline assumptions a reality. Before we start talking about what may be new in the Code, we must consider whether, when, and what portions of the legislation that is already pending can be enacted. That's a lot of Ws for April in an election year – and none of them stands for "win." Stay tuned! #TaxTake

Upcoming Speaking Engagements and Events

On April 26, Marc will moderate a panel titled "Retirement Policy's Path Ahead: 2022 Legislative Outlook," at the ERIC Spring 2022 Virtual Policy Conference.

Loren will speak about international tax agreements at the American Petroleum Institute's 87th Annual Federal Tax Forum on May 4.

Marc will present "Federal Tax Policy Update," at the Manufacturers Alliance Tax Council Spring Meeting on May 19.

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